BTC To Be Declared On Tax Returns? State of Israel May Deem Profit on Virtual Currency Taxable

One of the contributing factors toward the burgeoning use of virtual currency, may well be the ability for its users and creators to Leverage its unified form, value and accessibility, regardless of location, thus uniting its proponents on a global level.

Governments worldwide have a similar view insofar as regulating a peer-to-peer, borderless, home-manufactured, open-source currency which presents enormous challenges. In the free world, use of Bitcoin is legal, and whilst some nations recognize it as a currency, others in less free societies take a different view.

Israel Considers Tax On BTC Trading Profits

Today, the State of Israel announced that, whilst it considers the trading and use of Bitcoin to generate profit or to make purchases as perfectly acceptable, it may move towards applying taxation to profits gained from trading virtual currencies. The Israel Tax Authority is currently studying Bitcoin activity, and explained today to Israeli business resource Globes: "We cannot ignore this phenomenon, which one way or another involves financial transactions and therefore, we are examining its importance."

There are indeed, significant differences in how virtual currencies, especially Bitcoin, are viewed by citizens of specific countries.

In July this year, Forex Magnates lifted the lid on Argentina’s penchant for Bitcoin, and its inflated values and popularity as a means of circumventing capital controls, and alleviate some of the pain caused by the government’s draconian ban on the use of US dollars.

Mavericks or Technology Enthusiasts?

By its own nature as a currency, which is generated by the people, for the people, the Bitcoin community is represented by its fair share of mavericks, such as BTC Global CEO Mauro Betschart, and publisher and occasional speaker Jeffrey Tucker.

Within these circles, Bitcoin is often viewed as a means of gaining personal freedom against a despotic government, or a flamboyant means of becoming an industry figure with an agenda, or indeed an innovator of social trends. In Argentina, there have been a series of Bitcoin meetups at salubrious Buenos Aires venues, as well as its leaders marking themselves out as bold social and fiscal forebears to a free world.

In Israel, things are somewhat different. Israel has an extremely business-friendly financial markets structure, a successful economy and robust venture capital investment in companies. Therefore, with the highest percentage worldwide of investment in start-up technology firms, Israel’s population does not feel the need to circumvent its own sovereign banking and currency sector.

On the contrary – the majority of Israel’s citizens have utmost faith in the country’s economic structure, which not only survived, but continued to thrive despite the financial crises suffered in other western economies, due to the astute fiscal policy of Bank of Israel Governor Professor Stanley Fischer.

Bitcoin, however, has garnered the interest of an Israeli audience, but rather than seeing it as a reinvention of the monetary system, it is viewed from another standpoint: technology.

Forex Magnates recently attended a meetup at Tel Aviv’s Google Campus, hosted by Meni Rosenfeld, founder of Israel’s first Bitcoin exchange, Bitcoil. Whilst the service is currently suspended due to regulatory matters, Mr. Rosenfeld is very much an enthusiast, and hosted the meetup with a distinct focus on the technology behind Bitcoin-related businesses, serving the interest of the attendees whose interests were equally technology focused.

A Taxing Decision

The State of Israel has not yet clarified the model that it proposes to implement for taxing the profits of Bitcoin trading, however, it is the opinion of the Tax Authority that, regardless of the currency being external to the State of Israel’s jurisdiction, and that it could be traded anywhere globally, those who generate profit by trading the virtual currency should be subject to a form of taxation, as it constitutes earnings or capital gains. Currently, capital gains tax payable for the realization of any asset that increased in value in Israel stands at 25%.

On this basis, the upsurge in values of Bitcoin have not only attracted a wide, international audience encompassing many mindsets from technology experts to traders, to freedom seekers, it is perhaps a natural progression that governments of the free world would embrace, and use as a revenue generator for taxation purposes.