Brazil's Federal Tax Agency Now Requires Citizens to Pay Taxes on Cryptocurrency Transactions

The Federal Reserve Board of Brazil (RFB) has announced that investors in the Brazilian crypto-asset market must pay income tax on similar transactions involving cryptocurrencies; for example, the exchange of Bitcoin for Ethereum.

The RFB statement, published in the Diário official da União, was the result of a consultation with the regulator by a citizen of the country. Late last year, the group issued an opinion claiming that investors should pay taxes on transactions between cryptocurrency pairs, even if they are not converted into reals (Brazil’s national currency, BRL).

While it doesn’t specify what can be understood as “profit” since there is no capital gain in fiat currency when exchanging one cryptoasset for another, it notes that even then there is an obligation to pay taxes on the resulting profits:

“When one cryptocurrency is used directly to purchase another cryptocurrency, capital gains calculated from the sale of cryptocurrency are subject to personal income tax even if the purchased cryptocurrency has not been previously converted into real or other fiat currency. "

However, it is important to note that not all cryptocurrency investors are required to declare their transactions, as regulators stipulate that only those trading more than 35,000 BRL (approximately $7,263.67) are required to pay income tax.

"Capital gains from the sale of cryptocurrencies are exempt from income tax if the total sales of various crypto-assets or virtual currencies (regardless of their names) within a month equals or falls below R$ 35,000," the RFB announced.

Earlier, federal lawmaker Kim Kataguiri said he believed the ATO's advice was illegal and asked Congress to order an immediate suspension of the decision.

According to Kataguiri, the IRPF (Individual Income Tax) calculation and payment regulations stipulate that only transactions involving currencies will have capital gains (Articles 134 and 136 of Decrees 9580 and 2018), while when trading crypto assets of the same type, This is not the case.

“In transactions between cryptoassets, there is no exchange of currencies involved; one cryptoasset is exchanged for another, so there is no increase in net worth,” Kataguiri said.

According to the congressman, according to Section 110 of the tax code, the tax code cannot change the definition of a private legal institution, therefore, the federal tax office has no power to change people's understanding of the tax code.

“Legal innovation is necessary if one wants to tax cryptoasset transactions, and even in this case the constitutionality of the new law may be called into question. What we get is a completely illegal interpretation from the tax authorities, This is clearly beyond the powers of regulation," Kataguiri said.

Since 2016, investors in the Brazilian cryptocurrency market have been required to declare their crypto assets to the regulator. In 2019, the Brazilian Federal Taxation Agency issued normative directive No. 1888, which stipulates that all national exchanges must report to the regulator on a monthly basis all cryptocurrency transactions between users.

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