Italy Cryptocurrency Laws Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology
Law Decree No. 135
In 2019, the Italian Government legislative Decree no. 135. This Decree defined various aspects of cryptocurrency functions but fails to provide a specific definition for cryptocurrency. Specifically, the Decree provides statutory definitions for cybercurrency operations and smart contracts but does not generally define cryptocurrency. Under Italian law, a cybercurrency operation is defined as a “Distributed Ledger Technology (DLT).” Under the Decree, a DLT refers to a technology that uses a decentralized ledger based on cryptography. In other words, a DLT is an online ledger that records digital transactions. The Decree subjects DLTs under the jurisdiction of Agencia per I’talia Digitale (AID), an agency charged with overseeing and promoting the use of digital technology. Therefore, DLTs in Italy are regulated by the AID. Furthermore, the Decree defines Smart Contracts as software programs that work on DLTs and automatically bind parties based on pre-determined arrangements.
Despite defining blockchain and smart contracts, the Decree fails to include a general definition of cryptocurrency. Thus, one issue is whether cryptocurrencies are legally classified as currency or goods within Italy. This issue is significant because the answer will determine whether cryptocurrencies are an acceptable means of payment in Italy. The general view is that cryptocurrencies are treated similarly to other currencies that are not legal tenders in Italy, such as foreign currency or outdated currency. For example, Italy’s tax agency taxes gains from cryptocurrency transactions in the same way that gains from forex trading is taxed. Due to their similarities, gains from cryptocurrency and forex trading are both taxed at a rate of 26%. Since cryptocurrencies and foreign currencies are treated similarly under Italian law, the general presumption is that cryptocurrencies are a form of currency that is not technically legal tender. Therefore, cryptocurrencies are probably not considered goods under Italian law.
However, Italian Courts frequently disagree with the view that cryptocurrencies should be treated like other currencies that are not legal tender. In addition, Italian courts often disagree with each other over how cryptocurrency should be regulated. For example, the Italian Supreme Court cryptocurrency was a financial instrument following an online sale of bitcoin. In contrast, the Court of Florence held that cryptocurrencies held in an e-wallet that later became insolvent were classified as “fungible goods.” Accordingly, some courts in Italy’s judicial system classify cryptocurrency as a form of currency while some courts view it as a good. Despite this split in authority, cryptocurrencies are presumed to be financial instruments under Italian law since the Supreme Court is the highest in Italy’s hierarchy. Therefore, Italian caselaw defines cryptocurrencies as financial instruments since the Italian Supreme Court takes precedence over the Court of Florence.
In conclusion, the Decree defines cyber currency operations, DLTs, and smart contracts. Accordingly, the Decree provides a statutory definition under Italian law to various cryptocurrency functions and activities. However, the Decree fails to specifically define cryptocurrency in general. This failure to provide a general definition of cryptocurrency has led to a split in authority among Italian courts. Nevertheless, cryptocurrency is presumed to be a financial instrument because the Italian Supreme Court’s decision is controlling in the judicial system. Furthermore, the majority view in Italy is that cryptocurrencies are a form of currency that is not legal tender, like outdated or foreign currencies. Therefore, cryptocurrency is probably classified as a form of currency instead of a form of goods under Italian law. However, an issue of law will remain until the Italian legislature provides cryptocurrency with a general definition.
WORKS CITED
Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI. (2021). GLI – Global Legal Insights – International Legal Business Solutions. https://doi.org/http://www.globallegalinsights.com
In 2017, the Italian government issued Legislative Decree No. 90. The Decree grants the Ministry of the Economy and Finance the authority to publish official decrees concerning the procedures and timelines for cryptocurrency providers to perform their legal obligations. The Decree’s purpose is to prevent the use of Italy’s financial system for money laundering and terrorist financing. In Italy, financial crimes are a widespread issue because most Italians use cash to pay their bills. Specifically, cash-based systems may facilitate tax evasion and money laundering. Accordingly, Italian authorities placed cryptocurrency providers, such as Coinbase, under the same regulations enacted for traditional money exchange operators.
Furthermore, the Decree provides a statutory definition of “virtual currencies.” Under Italy’s definition, a virtual currency is a “digital representation of value, which has not been issued or backed by a central bank or a public authority and which is not necessarily pegged to a legal tender, but which is used as a means of exchange for the purchase of goods or services or for investment purposes, and may be transferred, stored or negotiated electronically.” Italian authorities interpret the statutory definition of virtual currencies broadly to encompass virtually all cryptocurrencies. Indeed, a broad interpretation is necessary because there are over 10,000 different types of cryptocurrencies. Therefore, virtual currencies are broadly defined under Italian law so that government authorities can prevent cryptocurrency from being used for illegal purposes, such as money laundering and terrorism financing.
In 2018, Italy implemented the Markets in Financial Instruments Directive 2014/65/EU (MiFID II). Generally, MiFID II regulates Europe’s financial markets and determines what financial instruments are legally permissible in the EU. In particular, MiFID II was adopted to protect cryptocurrency investors by increasing the transparency of virtual currency markets.
Under MiFID II, all entities that trade financial instruments must be authorized as investment firms under Italian law. Investment firms, also known as investment companies, are corporations trusted to invest pooled capital from investors in financial securities. Therefore, firms that use investor funds to invest in cryptocurrency must be authorized to do so by the Italian authorities. Additionally, firms that buy and sell financial instruments must satisfy margin and reporting requirements under Italy’s European Market Infrastructure Regulation (EMIR) and other business requirements. Furthermore, firms must abide by Italy’s investor protections, including disclosures, best executions, suitability, and appropriateness assessments.
To determine whether MiFID II regulations are applicable, the issue of whether a particular cryptocurrency token qualifies as a financial instrument must be determined because only financial instruments are subject to MiFID II. Therefore, not all cryptocurrencies are subject to MiFID II regulations because not all cryptocurrency tokens can be classified as financial instruments. However, most cryptocurrencies can probably be classified as financial instruments. Therefore, the majority of cryptocurrencies are subject to MiFID II regulations
Generally, financial instruments are “assets that can be traded, or… packages of capital that may be traded.” The three main types of financial instruments are cash instruments, derivative instruments, and foreign exchange instruments. Cash instruments are directly influenced and determined by the markets, and examples include deposits and loans. In contrast, the value of derivative instruments is determined by “the vehicle’s underlying components, such as assets, interest rates, or indices.” Finally, foreign exchange instruments are platforms that facilitate the exchange of fiat currencies from around the world.
Under Italian law, most cryptocurrencies are presumed to be financial instruments. First, Italy’s tax authority regulates cryptocurrencies as if they were financial instruments. In particular, Italy taxes cryptocurrencies in the same manner as foreign currencies because both are not legal tender within Italy. Since foreign currencies are still deemed financial instruments, the Italian tax authorities tax cryptocurrencies as financial instruments. Furthermore, Italy’s Supreme court held that bitcoin is properly classified as financial instruments under Italian law. Therefore, the general presumption is that cryptocurrencies are financial instruments and are therefore subject to MiFID II regulations in Italy.
Even though most cryptocurrencies are presumed to be financial instruments, each digital token must be analyzed on a case-by-case basis because Italian law does not generate a per se rule that cryptocurrencies are financial instruments. There are four types of cryptocurrency tokens under Italian law: (1) investment tokens, (2) security tokens, (3) payment tokens, and (4) utility tokens. Generally, investment and security tokens fall under MiFID II because they share similar characteristics with normal securities. Additionally, payment tokens are probably subject to MiFID II because they satisfy the definition of financial instruments since they are assets that can be traded. In contrast, utility tokens are generally unregulated by MiFID II legislation because they cannot be traded in financial markets. Therefore, they probably do not satisfy the legal definition of financial instruments and are therefore outside the scope of MiFID II. In sum, three types of cryptocurrencies presumably fall under MiFID II regulations:
Since cryptocurrencies are not per se financial instruments under Italian law, each token must be factually weighed to determine whether a particular token is a financial instrument. Generally, the following are presumed to be financial instruments under Italian law: (1) investment tokens, (2) security tokens, and (3) payment tokens. In contrast, utility tokens are presumed to be outside the scope of MiFID’s authority. As a result, Italian authorities will implement a factor analysis to determine whether a token’s particular characteristics weigh in favor of a financial instrument classification. Under Italian law, digital tokens will be subject to MiFID II regulations if all of the token’s factors weigh in favor of financial instrument classification. Accordingly, cryptocurrency tokens must be analyzed on a case-by-case basis to determine whether MiFID II regulations are applicable.
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Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI|Blockchain Laws and Regulations | Italy | GLI. (2021). GLI – Global Legal Insights – International Legal Business Solutions. https://doi.org/http://www.globallegalinsights.com
In September 2016, Italy’s revenue agency (Agenzia delle Entrate) published a Ministerial Resolution concerning the tax treatment of Bitcoin and other “cybercurrencies.” In this Resolution, the Agencia delle Entrate (ADE) declared that exchanging cryptocurrencies for traditional currencies are exempt from VATs. However, cryptocurrency transactions are not exempt from income taxes because Italian law recognizes profits and losses on cryptocurrency transactions as taxable corporate income. To presumably aid the ADE in tax collections, the Resolution requires cyber currency operations to disclose information on these transactions, including names, amounts, dates, and other relevant information. However, a cybercurrency operation does not include individuals who hold bitcoin for purposes other than commercial or corporate goals. Thus, these individuals are exempt from paying income taxes.
Concerning corporate taxation, the ADE declared that profits resulting from cryptocurrency transactions must be included in companies’ financial statements because they are relevant for corporate income taxes like IRES and IRAP. IRES taxes are subject to a 26% rate, while IRAP is taxed at a 3.9% rate. For personal income tax purposes, profits from cryptocurrency transactions are treated as gains derived from FOREX trading. Italy’s Revenue Department declared that Bitcoins are classified as foreign currency, subjecting cryptocurrency gains to high taxes. In Italy, gains on foreign currency and cryptocurrency are taxed at a rate of 26%.
Forex trading and cryptocurrency trading fall under the same regulations because they share unique characteristics. Like cryptocurrency, the forex market is decentralized because there is no central marketplace for foreign exchange transactions. Likewise, forex trading and cryptocurrency trading are borderless and are conducted worldwide. Specifically, forex trading is conducted over-the-counter (OTC), allowing two individuals in different hemispheres to execute transactions through computer networks. In addition, in OTC markets, financial disclosures are not required. Accordingly, forex trading is similar to cryptocurrency trading since both are decentralized and somewhat anonymous. Accordingly, profits from cryptocurrency and forex trading are both subject to a personal income tax of 26% under Italian law. In contrast, corporations are taxed at a rate of approximately 29%.
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
