Someone should put together a Wiki containing links to all current tax regulations for Bitcoin in each country. I'm very interested in what the Netherlands is going to do / has done with Bitcoin tax declarations, for example...
The example 2 in section 2.1.2 is curious. It essentially says that the value of goods purchased with bitcoins is determined by the eur-btc exchange rate at the time of purchase. I find that idea problematic because there afaik is no official exchange rates for bitcoin.
It's simple, you do it just as for any other freely traded currency pair, like EUR-USD - assign some body (central bank or some dept in ministry of finance) a duty to publish 'official accounting rates' and make a procedure on how to calculate such rates such as average rates of multiple large trading bodies.
It doesn't mean an offer to buy/sell at those exact rates (e.g., EUR/USD spot rates at every second will definitely be different from the 'official' accounting rates), but it's a guideline to evaluate value of things nominated in that currency.
It doesn't need to be an official exchange rate, it's what I guess would be best translated as a "fair market value". If there appears to be no fair market value for the virtual currency, one would need to be agreed upon by the parties. (I base this on the accounting rules listed for the receiver of the virtual currency).
What I find curious is the asymmetric handling of realized exchange rate profits vs. losses. Profits are taxed as capital gains, but unlike with e.g. shares, you can't use realized losses to offset the profits.
I'm not an expert, but here's my summary: Profits from bitcoins are taxed as capital gain, except for profits gained from mining or games, which are taxed as earned income.
BTC is not currency or security. BTC is treated as any other asset outside currencies and securities. Person must pay taxes for capital gains but they can't do tax deductions from losses. Taxes hit every time BTC is used to buy something.
Depending on the specifics, that has the potential to be a massive problem. Let's say you mine $1,000,000 in bitcoins but at tax time, the BTC market crashes and they're now worth $100,000. Do your tax bill now exceed your income?
This isn't a hypothetical scenario - During the .com 1.0 boom, some people cashed in their stock options but kept the stock (to get long-term tax rates on stock that could only go up). A year later, they owed income tax (historical market price - strike price) on stock that was now worthless. (capital losses are limited to $3,000/year but carry forward).
I don't think this is a problem, an in the scenario you described the person was taxed fairly.
All goods fluctuate in value with time. The fair value from the point of view of taxation is the value when you earned it, whether bitcoin or stock options (maybe with options it's timed at when you exercise, I'm not sure).
Imagine a person who earned $10,000 and chose to buy some stock with it, and then that stock crashed. Did that person get taxed on stock that was worthless? Of course not, they earned money (which was taxed) and chose to invest it in something risky. The person who chooses to keep their stock is no different. They could have chosen to sell, and avoid the risk.
Bitcoin is less liquid than stock, so it is harder for a bitcoin miner to avoid these risks. Nonetheless, that's not the government's fault. Paying tax is a cost of business.
Step 2: Buy stuff with bitcoins, possibly laundering them.
Step 3: Go to jail for intentional tax fraud. Good luck.
You need to spend those bitcoins to get some use of them - if you do it on a small scale, noone cares about losing 20 cents in tax; if you do it on a large scale, it becomes linked to you. For example - seller reports (for tax purposes) who/where they delivered goods; any bitcoin-money converter links your identity to this income; any bitcoin-vs-stuff barter can be a police sting operation, etc. Denying and laundering income is an old, traditional crime - and the same policing approaches that work with cash laundering will tend to work with bitcoin laundering as well.
Paying taxes costs some amount of money - but saying "good luck with that, tax man" can easily go over to crime/jail category; think twice if you want to go over to that road.
And as I understand it, Finnish people tend to pay their taxes proudly. (Might have something to do with the majority of their workforce being employed in the public sector.)
So I don't think this will really be an issue anyway.
Offtopic; possibly interesting -- is the average word in Finnish far longer than the average word in English? I ran `style` over that piece of text, and it told me that the average word had a length 6.74 characters. That seems pretty long to me.
but all transactions are public [1] Thus once you inform gov which are your bitcoin wallets, they can look through the block chain. Ironically, this means they will have much much more info on you than if they just had your bank account number.
Privacy/security-conscious bitcoin user can have thousands of bitcoin addresses (one for each transaction, the recommended way of using by the official client.) Also off-the-chain transactions are possible on several wallet services.
