An Israeli Central District Court in Lod has ruled in favor of the Israel Tax Authority to imposed taxes on bitcoin and other virtual currencies. This verdict was given at a court case between the tax authority and the founder of a blockchain startup who argued that revenues generated from the sales of cryptocurrencies should not be taxed.
The court supported the interpretation proposed by the tax authority and noted that Bitcoin is not a currency but an asset, thus profits relating to the cryptocurrency is subjected to tax.
Judge Shmuel Bornstein said in his ruling that since the status of bitcoin still remains undefined in the country and because “there is still the possibility that Bitcoin will cease to exist and will be replaced by another virtual currency, it was hard to envisage a result whereby Bitcoin would be considered a currency for tax purposes in particular,” according to report from local news outlet, Globes.
The appellant Noam Copel, founder of blockchain startup DAV, expressed that virtual currencies ought to be defined as currency and nothing more, noting how he purchased Bitcoins in 2011 and sold them in 2013 with a proceed of NIS 8.27 million (app. $2.23 million)
Copel argued that Bitcoin should be categorized as a foreign currency and every proceed realized from it should be regarded as an exchange rate differences gained by an individual and not as a business; thus, taxation should not be necessary.
The tax authority, however, opposed that Bitcoin is not a currency neither should it be foreign currency, adding that Bitcoin falls under the definition of an asset, so profits on its sale are subject to capital gains tax.
The court accepted the tax agency’s argument that “the ‘currency’ to be adopted was the one in the Bank of Israel Law, according to which a currency must have some physical-concrete manifestation.”
“Copel had failed to demonstrate that Bitcoin met this definition, or that it represented a real alternative to coins and notes in any country,” Globes reported,
Copel is now liable to a tax of NIS 3 million ($830,805) and he was ordered to pay NIS 30,000 ($8,308) as costs.
Speaking on the case, the Former Deputy Head of the tax authority, Gidi Bar Zakay CPA, said: “Judge Bornstein methodically reviewed the provisions of the law that deal with, among other things, the definition of a currency, and ruled that.”
Zakay further noted that a “reality test” will ultimately determine the status of bitcoin. When bitcoin becomes widely accepted, then there has to be a change in the law to accommodate it in order for the country to benefit from the potentials of virtual currencies as a trusted and widely accepted means of payment.