

Norway Rejects Bitcoin As Currency; Taxes As Asset, Instead - rukshn
http://yro.slashdot.org/story/13/12/16/1012225/norway-rejects-bitcoin-as-currency-taxes-as-assets-instead

======
Cthulhu_
I don't blame them; you can't buy much with bitcoins, everyone treats it as an
asset whose value is entirely determined by the current exchange rate /
buy/sell prices, and that exchange rate is so unstable, no sane bank would
want to offer services for it.

~~~
VMG
It's very unwise to categorize at this early stage of development.

Artificially restricting the use as a currency because it doesn't work as a
currency _at the moment_ makes it a self-fulfilling prophecy.

Just imagine how sensible strong internet regulations would have been in 1992

~~~
Millennium
Perhaps, but I don't see any way around it: you've got to call it something.
At the moment, bitcoin is a lot more like bullion than currency: it's possible
to store and exchange raw value with it, but except in a very few cases,
you're not able to walk into a store and buy something.

Laws can be changed. If Bitcoin starts acting more like a currency, then the
laws can be changed to suit. Right now, it is not very currency-like, and that
is unlikely to change very much in the next five years or so, and so treating
it as one doesn't make a lot of sense.

~~~
lectrick
> you've got to call it something

It's not quite like anything else, so why pigeonhole it? Call it a
"decentralized cryptocurrency" or just "bitcoin" or "a perfect simulation of
gold in electronic form"

~~~
TylerE
That's essentially what they are doing.

If you brough gold bars into the country you'd be taxed in the same way.

~~~
lectrick
Good luck tracking people bringing bitcoin into the country

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exelius
I don't understand how Bitcoin is considered a currency in the slightest.
Currencies are generally a mere representation of production, not the output
of production itself. Let me explain:

If a worker on an assembly line in South Carolina makes a window motor for a
car, he is paid in USD. But the USD he is paid is not the output of his labor;
the output of his labor is a window motor that is eventually put into a car,
that some software engineer may drive on his way to work creating other
productive (albeit non-physical) things. It's the economic web.

Bitcoin is an economic dead-end. It takes CPU cycles to make a Bitcoin, and
those cycles aren't used for anything else. It is an output of production that
has no intrinsic value. Well, that's not ENTIRELY true: Bitcoin has had some
fleeting value as a loophole that allows the economy to reclaim some dead
weight loss from government regulation, but as those loopholes close, the
economic value of Bitcoin diminishes.

Bitcoin is different from other stores of value that behave like currencies
(such as gold) because it has no use other than as a store of value. Gold has
industrial uses due to its physical and chemical properties, and it is desired
in the consumer space as a material to make jewelry out of. But Bitcoin is not
an input to production: its sole purpose and use is as a store of value. The
price of Bitcoin will never stabilize for this reason: even if people decide
to stop using gold as a store of value, it will continue to have a price floor
based on its industrial and consumer use.

Thus my position that Bitcoin is not truly a currency, and the way it's being
traded today is much more akin to something like a junk bond. It is an asset
because it is limited by the factors of production: it is the exclusive output
of production. Currency is different than an asset _specifically because_
there is a central authority that can issue new currency without increasing
production. This is necessary because they issue new currency as a reaction to
increased production; not the other way around. Currencies like the USD and
EUR are stable because the central banks control the conversion rate of those
currencies by manipulating the supply of currency.

~~~
eatitraw
> Bitcoin is an economic dead-end. It takes CPU cycles to make a Bitcoin, and
> those cycles aren't used for anything else. It is an output of production
> that has no intrinsic value.

You simply don't understand bitcoin. It is not like Satoshi couldn't come up
with "useful" computations with "intrinsic value". He deliberately chose
"useless" computations. Why? Because these computations serve very important
role in the network: they make fraud(like double-spending) very costly(you
have to control 20-30% of network computing power to have even smallest change
to execute your attack, and 50%+ to have 100% chance of doing it).
Computations having "intrinsic value" == extra incentive to attack.

Also, you miss all the work done by armed guards to protect large piles of
cash( [https://en.wikipedia.org/wiki/Cash-in-
transit](https://en.wikipedia.org/wiki/Cash-in-transit) ). Do you think they
do their work for free? And this is only obvious work. How much does current
banking costs to us in total?

> Gold has industrial uses due to its physical and chemical properties, and it
> is desired in the consumer space as a material to make jewelry out of.

Gold was used for thousands of years long before it had some uses in the
industry. It has no really special chemical properties: it doesn't react much
with other chemical elements (which is actually awesome for a currency: it
means it can preserve its value for many many years). Jewelry - maybe, but
isn't it so desired for jewelry because it is scarce? You could make jewelry
out of less noble metals.

~~~
exelius
I'm speaking in pure economic terms. The production inputs to mining Bitcoin
have real market value and thus there is an opportunity cost to mining
Bitcoin. I'm not arguing that Bitcoin has no value (because obviously it does
if people are willing to trade them for USD) -- just that it has no intrinsic
value.

As a physical good, the desirability of gold is simply to own it and stare at
it. We can get into a philosophical debate about how you define utility, but
for some people the fact that they find the appearance of gold aesthetically
pleasing is enough. It's hard to find much aesthetic value in a Bitcoin. If
people decided to stop using gold to store value tomorrow, it would still have
industrial and asthetic uses. If people decided to stop using Bitcoin to store
value tomorrow, the Bitcoins just lose all value.

Current banking is most certainly a product with associated value -- it's just
not a currency. Bank checks are issued in USD, wire transfers are denominated
in EUR, etc. I'm saying that Bitcoin, as it exists currently, is a digital
asset with a high market value but no intrinsic value. It's not really a
currency though, because modern currency is almost by definition controlled by
a central bank to make it more useful as a transactional tool. If you have
regular spikes and drops in the value of the currency, you don't know whether
to buy bread on Tuesday or Friday. Everyone starts trying to time the market
and you fall into a boom-bust cycle that is excruciatingly painful for
individuals who get the timing wrong (see the US economy of the mid-to-late
1800s).

------
Expez
The title is pretty misleading. Even if they wanted to the tax authorities in
Norway don't have the authority to determine what is and what isn't a
currency. The only thing they've determined, once and for all, is that you
have to pay taxes when you profit from trading in bitcoins (like everything
else!).

~~~
user24
> like everything else!

Is the same true for currency conversions? If I convert my Krone to Dollars
and then back again when the exchange rate is more favourable, will I have to
pay taxes?

Genuine question, I don't know how forex trades typically work.

~~~
yebyen
I don't know about Norway, but this great article was posted on HN about US
tax implications of Bitcoin once before:

[http://www.bitcointax.info/](http://www.bitcointax.info/)

The main point I understood was that when you deal with bitcoin (and I am not
an accountant, and this fellow is not your accountant) there's a "realization"
event where your asset is realized into a gain, I think it's called a capital
gain, and like selling your business after putting your own capital into it
for many years, that is the moment where you owe taxes.

It's not any point of withdrawal, since you might argue "it's not realized,
it's just numbers on my screen until it hits my bank account" but this
accountant would argue more conservatively that even if you are a US customer
of Mt.Gox (and therefore can't get access to your USD without paying a bribe
or taking a trip to Japan? I think that was the last story I heard, not
claiming firsthand knowledge)...

If you pay $100 for 1BTC and sell it for $1250, and buy 1BTC at $850, you have
$1250 of income and $950 of expense to offset.

You will not be able to claim only $400 of income and you may not be able to
defer that tax payment (on $1250 minus whatever percent of $950 expenses you
can claim against your business' net income.)

This is not exactly how forex works and I believe the US situation wrt.
Bitcoin is exactly like the Norway situation given this news, from my limited
understanding. Hopefully someone with more background will be able to give a
better explanation that actually answers your question, and point out if I'm
wrong on something.

~~~
gamblor956
That's wrong. Individuals do not get to net capital gains and expenses in that
manner. They can net capital losses against capital gains, but expenses
related to the purchase of capital assets are effectively ignored for tax
purposes until the asset is sold.

In your example, you have $1250 of realized gain and $1150 of recognized gain
(i.e., taxable income) from the sale of your old bitcoin, and $850 of basis in
your new bitcoin.

~~~
yebyen
Thanks. That makes sense. I'm going to change the story since I think I
understand what you're saying, but I'm still curious...

So if you were a miner and you spent $600 on hardware

Which brought you 6BTC... and you cashed out 0.6BTC as $700, and bought more
hardware with 0.8BTC, which so far nets you $0 (hasn't arrived yet)

Hopefully you'll indulge my line of inquiry...

You don't owe taxes on the remaining 4.6BTC because you have no realized gain
from that asset, you paid taxes on the money you used to buy the first batch
of hardware (say it all came from your employer and they did withholding, so
you've paid those taxes)

So that leaves you with $1300 of "realized" income and a cost basis of...
which of either $600 or $1300? Not sure which because in this slightly
different case you haven't actually bought and sold the bitcoins, and your
hardware could belong to your ongoing mining operation, right?

~~~
yebyen
I flubbed and added two numbers that ought to have been in opposite columns.

$700 is the cash value of the 0.6BTC sold. $870 is the cash value of the
0.8BTC order for more hardware at the time the order was placed.

So you've got 4.4BTC in assets as unrealized gains, $1570 (700+870) in
realized gains, and $1470 in mining expenses.

Does that mean you owe taxes on $100 in recognized gains, and the rest are
unrealized assets that are not taxed until they are sold?

I think I understand. That sounds a lot more favorable to the miner than the
speculative buyer, but it seems to be correct.

------
sergiosgc
Are we linking to Slashdot now? Why not submit a link to the original article?
([http://bitcoinsalot.com/?p=8](http://bitcoinsalot.com/?p=8))

~~~
buro9
The original author doesn't seem to know the difference between Norway and
Nordic.

------
sfrechtling
I'm no economist, but isn't that congruent with how similar things like Gold
are treated?

~~~
runarb
The issue here is that Norway adds vat (value added tax) on assets when sold
to private citizens. Vat is added to most assets, including gold.

This makes bartering more expensive when bartering with foreigners. For
example if a Norwegian where to trade 1000 USD worth of gold for a new pc with
someone in the us, the Norwegian would have to pay 1250 USD for the same gold
(1000 USD in gold, 250 USD in vat). Same for BitCoin. One will need to pay vat
when buying them.

However one can buy 1000 USD in gold coins for 1000 USD because the coins are
considered a currency, and thus not subject to vat.

~~~
walshemj
Ah interesting so Norway doesn't follow the same rules on VAT from the EU then
as they are part of the European Economic Area.

What is to stop a Norwegian going to an EU state and buying gold there as the
EU treats investments such as gold and stocks and shares as exempt from VAT
(sales tax)

~~~
runarb
This is a common problem. When the gold crosses the border it becomes 25% more
worth.

Just in March this year someone was arrested for smuggling in 421 kilo of
gold: [http://www.aftenposten.no/nyheter/iriks/Politiet-Nettverk-
sm...](http://www.aftenposten.no/nyheter/iriks/Politiet-Nettverk-smuglet-
over-500-kilo-gull-inn-i-landet-7141130.html) (in Norwegian).

I guess one could also melt gold coins to obtain the gold without paying vat.

~~~
davej
For those (like me) who were confused, mars = March.

~~~
runarb
Thank you. Fixed now :)

------
tim333
In the UK you pay capital gains tax on buying and selling anything pretty much
including regular currencies, bitcoin or stocks. I imaging most countries are
similar.

~~~
nemoniac
Why would you imagine that?

Here in the Netherlands there is no tax on capital gains.

------
hmottestad
This is actually rather funny, a professor from the law department said to the
media that bitcoins are treated as two different things. First as a physical
product and given 25% VAT when bought, then as a financial instrument when you
sell it because you have to pay taxes on anything you earn (you can also get a
tax deduction if you loose money when you sell it).

~~~
PeterisP
How is that 'treating as a financial instrument' ? If you earn money on
resale, then it's taxed, no matter if it's a piano, a house, a bar of gold or
a virtual coin.

~~~
hmottestad
In Norway when i private person sells their jewellery and makes a profit they
don't have to pay taxes on that profit. Same way that they can't reduce their
taxes because they lost money when they sold their jewellery. Same for house
(if owned for >1year), and car, and boat, and all other physical things.

------
lectrick
This is a nonevent. In the US, on the advice of my accountant, I have been
treating Bitcoin gains (for "sold" BTC) as capital gains for tax reasons for
over a year now. I don't think the IRS would have a problem with this.

~~~
crb002
Would you also write off mining servers as a business expense?

~~~
sliverstorm
That's only if he spends more than 2% of his income on mining hardware, right?

------
gaius
Government in tax maximizing shocker, film at 11.

~~~
panacea
Being sensible about asset valuation. Libertarian scorn at dawn.

------
dschiptsov
Why, it _is_ an asset. Virtual asset. It is possible to use the technology to
make payments, but you see, everyone longs it, and the price drifts downward
slowly on almost no volume.

Edit: if something looks like an asset, being traded like an asset and has a
bubble like an asset..

------
GoldfishCRM
As I understand it bitcoin will be treated like a stock. Which means that you
can use the loses you made on bitcoin and balance then agains your wins=) Make
sense since the bitcoin fluxiate so mush right now.

~~~
runarb
No. As I understand it, BitCoin will be treated like a physical asset. For
example the same as a gold bar.

In Norway assets are subjected to value added tax, but currencies are not.
This makes bartering problematic. For example a 1 oz gold bar will cost about
10000 NOK in Norway (8000 NOK for the gold, and 2000 NOK in vat).

But a 1 oz gold coin will only cost 8000 NOK because the coins are considered
a currency, and thus not subject to vat. If you are going to barter 1 oz of
gold for something it is thus better to use a gold coin, then a gold bar.

------
alixaxel
Gold is mined. It's limited. It's an asset.

Bitcoin is mined. It's limited. It's an asset.

Currency is not mined. It's unlimited. It's currency.

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cLeEOGPw
I think this is good, because it will discourage speculation and encourage
direct bitcoin trade, since they can't tax that.

------
ww520
Cash, aka currency, is part of the asset class.

