Denmark could consider taxing unrealized crypto gains: report

The Tax Law Council in Denmark has recommended proposing a bill to tax unrealized gains and losses on crypto assets under an inventory taxation model.

According to an Oct. 23 announcement citing Danish Tax Minister Rasmus Stoklund, the proposed bill aims to address the unfair taxation of crypto investors and simplify the tax rules for crypto assets.

The bill proposes a uniform tax rate of up to 42% on gains from crypto assets, which would be categorized as capital income.

In the report, the council explored three potential taxation frameworks for crypto assets: capital gains tax, warehouse taxation, and inventory taxation. 

The council ultimately recommended the inventory model as the go-to approach, as it streamlines the process for frequent traders and brings crypto taxation in line with other financial instruments like stocks and bonds.

What stands out with this model is that it taxes both unrealized gains and losses at regular intervals, regardless of whether the assets have been sold. 

This continuous taxation could level the playing field by eliminating the timing strategies some traders might use to their advantage. However, it also introduces potential issues, like being taxed on assets that haven’t been liquidated yet, which might not sit well with some investors.

Further, the proposed bill would require crypto entities to report user identities and detailed transaction data to tax authorities. It would also align with European Union-wide regulations, such as MiCA and DAC8, to ensure consistent oversight, facilitate cross-border cooperation, and strengthen the ability of all member states to monitor and tax crypto transactions effectively.

However, the bill would not be introduced to the parliament until early 2025, according to Stoklund, and would be subject to evaluation, with the earliest recommended implementation date set for January 1, 2026.

If the bill is passed, Denmark would become the first nation to tax unrealized gains on cryptocurrencies.

The recommendation follows a ruling from Denmark’s Supreme Court last year, which determined that profits from the sale of Bitcoin are taxable.

Crypto taxation around the globe

Taxation of cryptocurrency gains has become a global issue as several other jurisdictions have introduced or are considering regulations to address how digital assets should be taxed.

On Oct. 21, the Federal Reserve Bank of Minneapolis urged the government to introduce a tax on Bitcoin. Meanwhile, Italy is in discussions to raise capital gains tax on crypto from 26% to 42%.

South Korean authorities have also considered the idea of imposing a 20% tax on crypto gains, while India has a flat income tax rate of 30% on earnings from crypto assets.