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Spanish Tax Authorities explain how tax applies to bitcoin losses

The Spanish tax authorities have recently shed light on how the country's existing tax laws should be applied to losses incurred by the collapse of a bitcoin exchange, resulting from a scam or a situation of insolvency.

A bitcoin aficionado, who claimed to have lost a large part of his savings after investing in bitcoin, framed a question directed at Spain's Dirección General de Tributos (DGT).

According to the question, the bitcoin enthusiast invested his bitcoin in a third party loan service in 2013. Towards the end of the year, the website's administrator, identified only by nickname and a public key, informed depositors who suffered a theft of bitcoin and deposits could not be returned. He was then offered a refund amounting to 5% balance deposited in exchange for dropping claims for the remaining quantities and the exercise of any legal action. 

Suspicious of a Ponzi scheme run by the administrator, the bitcoin enthusiast refused the offer and filed a case with the Spanish police. The person asked the DGT if bitcoin losses could be considered as a capital loss for tax purposes.

The DGT noted that such kinds of instances were covered by the existing Personal Income Tax Law. He added and that, in order for the losses to be considered a capital loss for tax purposes, one of the following conditions must apply:

  • "There is a reduction of the debt of the credit approved by a judge.
     
  • The debtor is in bankruptcy and there is a reduction of the debt during the procedure; or the credit is not recovered after the bankruptcy procedure.
     
  • When one year has passed from the beginning of a procedure (different from the bankruptcy procedure) and the non-recovered credit is still outstanding.

If the credit is recovered after the recording of the capital loss referred above, the taxpayer must record a capital gain for the amount recovered (in the fiscal year in which the credit is recovered)".

Alejandro Gomez de la Cruz, lawyer and founder of Law and Bitcoin, told CoinDesk:

"I think the current law has been interpreted correctly. Whether it is positive or not, I think that these kind of interpretations will be welcomed by the community."

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