Just as the IRS formalized its stance on the taxation of virtual currency, treating it like property and not currency, Denmark has taken the opposite stance: it is not subject to taxation at all.
The ruling means that capital gains arising from trading in Bitcoin will not be taxable. However, losses won't be recognized either, which means they can't be counted against, for example, capital gains realized from other investments.
The rationale behind the decision seems to be that "real money" is not involved in trade. Gains were compared to those of an individual privately selling a painting in his/her home, which isn't taxable.
However, if one has a business whose income is generated through the trading of Bitcoin, such gains are taxable like any other business income. This distinction treads on the fine line between capital gains and business income. Here, the emphasis was on a business that directly feeds or speculates in bitcoin prices for income generation, which may imply that casual trading by an "individual" is exempt even if his/her trading frequency is relatively high. This would contrast with the framework in the U.S. where the frequency of trade can matter, such as when the same security is disposed of more than once within a 61-day period under the "Wash-Sale" rule.
Denmark's ruling for taxes comes only days after it issued stark warnings about the use of virtual currencies, comparing Bitcoin to "glass beads".
The recent formalizations come just in time for tax season in many jurisdictions, which until now were in the dark on how to proceed. Britain came out with its guidance several weeks ago, which fell somewhere between the rulings in the U.S. and Denmark, with several scenarios taken on a case-by-case basis.
