The subject of the disputes was the assessment of whether the sale of bitcoins for Czech currency is subject to exemption from personal income tax pursuant to Section 4(1)(ze) of the Income Tax Act, i.e. that it is a foreign exchange gain resulting from exchange activities.

The administrative authorities (the tax administrator and the Appellate Financial Directorate) have determined that bitcoin must be considered a different asset, since according to the Civil Code, an asset is anything that is different from a person and serves the needs of people. Considering that bitcoin has a virtual essence, the authorities have labelled it as an intangible movable asset. According to the court, the exchange of bitcoin for money is other taxable income under the Income Tax Act.

Regional Court: Bitcoin is not money

Furthermore, the administrative authorities considered whether the sale of bitcoins could be subject to tax exemption under Section 4(1)(ze) of the Income Tax Act. The taxpayer – plaintiff argued that bitcoins should be seen as foreign currency, not intangible assets, and therefore the income from the sale of bitcoins can be considered a foreign exchange gain resulting from exchange activity. However, the Regional Court disagreed with the taxpayer’s arguments and supported the opinion of the tax administrator, which is also formulated in the recently published Information on the tax assessment of cryptocurrency transactions (In Czech language only). According to the court, bitcoin cannot be considered money or foreign currency, as it is not recognised by the state, it is not regulated by any authority, and does not have a material existence, as confirmed by the opinion of the Czech National Bank of 10 February 2014.  Therefore, the sale of bitcoins, as well as other cryptocurrencies, is considered a sale of intangible movable assets, which is, by its nature, taxable income for an individual.

The Regional Court therefore dismissed the action and additionally assessed personal income tax of the taxpayer on the sale of bitcoins for the Czech currency. These first judgements are thus a confirmation that cryptocurrencies are a phenomenon of our time and that it is necessary to consider tax aspects when trading with them.