Complex management of the digital currencies agenda (cryptocurrencies)
- Ludmila Malimánková
- Milan Pašek
- Tomáš Brabenec
We currently encounter questions about automated or algorithmic trading on financial markets increasingly more often, about trading on unregulated cryptocurrency exchanges or about using cryptocurrencies as means of payment. Related questions appear, as to how to capture the individual transactions in the accounting accurately and what impact these transactions have on taxation and other business-related areas.
The use of cryptocurrencies may bring new business opportunities for an entrepreneurial entity, enable appreciation of available funds and, last but not least, it may also bring new business partners, who will consider the respective company an entity that is open to innovations.
The most common transactions a company may come across in the field of digital currencies:
- purchase of cryptocurrency for future payment of one’s liabilities,
- payment of liabilities in cryptocurrencies,
- reception of payments from one’s clients in cryptocurrencies,
- cryptocurrency mining,
- cryptocurrency as a tool aiming at realising profit from the difference between selling and purchase price,
- staking and others.
What should one pay attention to:
- Is it necessary to obtain a special license in order to use cryptocurrencies as a payment instrument?
- How should it be recognized in the accounting, if a company wants its services to be paid for or accepts payments for its services using digital currencies?
- How should cryptocurrencies be valuated in the course of the accounting period and at its end?
- What is the perspective of value added tax?
- What is the perspective of the income tax?
- What is the connection to records in the EET system?
- Is it necessary to perform inventory-taking of cryptocurrencies?
The concept of cryptocurrency in the field of accounting and taxes:
Cryptocurrency may be understood as a digital asset based on cryptography (encryption). There are currently various view of this asset from the perspective of the institutions concerned.
The Finance Ministry of the Czech Republic recommends unified recognition and reporting of cryptocurrencies despite the possibly different motives for holding and using cryptocurrencies, as inventory “of its kind”.
The IFRS (International Financial Reporting Standards), on the other hand, consistently apply the principle of substance over form, and therefore the purpose of cryptocurrencies determines the reporting.
The National Accounting Council of the Czech Republic recommends maintaining compatibility with the IFRS. The recommendation is intended to help the accounting entities, for which it is not adequate to report cryptocurrencies as inventory.
The Finance Ministry of the Slovak Republic defines purchased cryptocurrency as current financial assets valuated in the same way as trading securities. Self-mined cryptocurrencies are only recorded in the off-balance sheet and valuated at real value at the time of their use.
According to the Czech National Bank, bitcoins, for example, are not cashless means of payment or electronic money, and they do not show the characteristics of an investment tool either, because they do not have the nature of a security or a derivative.
From the few cases mentioned, it is clear that the recognizing and reporting of digital currencies is not yet treated in the international accounting standards and is not clearly defined on the level of national regulations either. It is to be expected, however, that the treatment of this area will in future be based on the IFRS, which consistently apply the principle of substance over form. Several concepts of recognizing and reporting digital currencies may, therefore, be considered, such as for example the following:
- means of payment (foreign or also functional currency),
- current/non-current nonfinancial investments (if they can be reliably valuated),
- inventory of products or goods (in the case of products it is cryptocurrency mining),
- current/non-current financial assets (similarity to trading securities with revaluation to real value).
We are certain we can offer you professional consulting services in all of the above-mentioned areas and we will be able to suggest the most suitable solutions to you for specific cases. We offer the setting up of accounting method, reporting, valuation including the related tax consulting and we are prepared to provide complex services to you and be with you during routine decisions as well as important ones.
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