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With the increasing popularity of cryptocurrencies, their tax treatment has become a more pressing issue. Cryptocurrencies are neither legal tender nor are they classed as securities or assets in Switzerland. Thus, for tax purposes, the first question that arises is the treatment according in an accounting context. If you have any questions regarding how cryptocurrencies are handled, contact one of our tax lawyers to clarify any concerns.
Among the various cryptocurrencies, there are some discrepancies, but for the following evaluation, we will explicitly refer to what remains the most significant cryptocurrency, Bitcoin.
The recognition of an asset necessitates that it is capable of being capitalized. The prerequisite for this is that the asset can be disposed of on the basis of a past event, a likely inflow of funds, and the possibility of a reliable estimate of value. In the case of Bitcoin, the past event will likely be their purchase or ‘mining’. Bitcoin is also disposed of by obtaining the private key. The inflow of funds is recognizable in the case of Bitcoins, since they serve as a means of payment and can be exchanged into fiat money. Last but not least, the active market for Bitcoin qualifies as a reliable indication of its value as a digital currency. Since bitcoin is able to meet all these features, they are able to be capitalized, making them suitable for a balance sheet, depending on the intended use.
One of the most obvious items- cash and cash equivalents- does not seem appropriate. Cash, postal balances and bank balances all fall under the category of cash. Implicitly, these are legal tender. Despite having been recognized in the Central African Republic and El Salvador as such, there are some economic currency properties which are currently not met. For example, high volatility.
Cryptocurrencies such as Bitcoin do not constitute ‘securities’ in the legal sense. However, the accounting concept of securities is not congruent with the legal sense and encompasses much more. In addition to securities, other assets such as equity securities without the character of securities or even gold and other precious metals are reported together. The balance sheet item of securities is appropriate accordingly. However, a distinction is still made for the holding intention. For example, bitcoins with a short holding period are classified as current assets or assets in circulation with a quoted price, while bitcoins with a long holding period are classified as non-current assets or assets as an investment.
If bitcoins are held as part of an operating business activity, their position of securities falls away. Thus, in addition to the usual components such as raw materials or finished goods, other assets intended for the operating business also belong to inventories. Accordingly, it is appropriate to include this item in the balance sheet if a significant volume of bitcoins is traded.
Intangible fixed assets include identifiable non-monetary assets without physical substance such as patents, licenses or concessions. In themselves, bitcoins with long holding intentions fulfill these criteria. However, cryptocurrency tends to follow the character of securities, which is why accounting in this position is preferable. In some cases, however, it may make sense to include them in the balance sheet under intangible assets.
The valuation method to be applied for Bitcoins depends on the respective accounting item.
If bitcoins are accounted for as securities, there are two options for valuation. On the one hand, according to the acquisition costs/lowest values or, on the other hand, according to stock exchange prices or at observable market prices. For the latter, reference can be made to the valuation of the FTA, for example, which publishes decisive values for some cryptocurrencies for wealth tax purposes.
For the valuation of bitcoins, in the balance sheet item of inventories, there are two possibilities. On the one hand, the valuation can be based on acquisition costs or lower market value. The lower market value is to be determined in accordance with the execution for securities. For example, the first-in-first-out method can be used to determine the acquisition cost. On the other hand, inventories can also be measured as assets with observable market prices.
Bitcoins, which are reported as intangible assets, also result in an option from two possibilities. On the one hand, the valuation can be carried out according to the acquisition costs/lowest values. Cryptocurrencies are not subject to any age-related or use-related losses in value, which is why no corresponding write-downs have to be made. However, value adjustments due to other losses must be taken into account. These are given if the market value falls below the acquisition or previous value. The market price is determined in accordance with the comments on securities. On the other hand, bitcoins can also be measured as intangible assets in accordance with assets with an observable market price.
For the valuation according to the observable market price, the formation of a fluctuation reserve is possible in any case and must be examined.
The accounting treatment of Bitcoins still brings many possibilities and sometimes uncertainties, if you have any questions, our tax lawyers will be happy to help you.