An Israeli court on Tuesday endorsed the interpretation provided by country’s tax authority on how it should recognize the exchange of Bitcoin and other virtual currencies. The Israel Tax Authority's position was that any profit made off Bitcoin transactions is taxable as the cryptocurrency should be viewed as a financial asset that does not fit the legal definition of a legal currency.
Lod’s Central District Court rejected an appeal from Noam Copel, CEO and founder of the DAV foundation, who argued that profits he made from selling bitcoins aren’t subject to Israeli capital gains, which range to a high of 25 percent.
Arguing that Bitcoin should be classified as a foreign currency, Copel made a profit of NIS 8.27 million in 2013 from liquidating crypto holdings he acquired back in 2011. In his argument before the judge, he claimed that the profits he made five years ago stemmed from an exchange between individuals, not a business transaction that is legally taxable under Israeli law.
Crypto transactions are also subject to VAT
However, the Israeli district court ruled in support of Israel Tax Authority’s position, making all profits made through bitcoin sales taxable. The ruling makes Copel liable to remit tax of about NIS 3 million. In addition, the judge fined Copel NIS 30,000 in legal costs.
As per the case examination, Judge Shmuel Bornstein said the legal standing of bitcoin is always changing since it is such a new asset. He added that Bitcoin could cease to exist or eventually replaced by another virtual currency, which makes accepting it as a currency for tax purposes a bit difficult.
The Israeli Tax Authority (ITA) has represented in the past that it considers cryptocurrency to be property, and in keeping with this, it taxes cryptocurrency as it does any other transacted commodity.
As there is no particular by-law in Israel overseeing cryptographic forms of money, the ITA has previously clarified that Cryptocurrencies will be taxed as capital gains and thus will be subject to 25 percent tax in the case of private investors. In addition, companies selling cryptocurrencies will be subject to a VAT tax at the rate of 17 percent, but individuals’ transactions are exempt from any VAT obligations.
