The value of bitcoin on the company’s balance sheet: should it be included?

In previous articles we tried to suggest an examination of the current financial framework for cryptocurrencies.

Cryptocurrencies in tax returns: should they always be declared?

Buying cryptocurrency as a private individual: What you need to know to comply with the tax authorities

Do I have to pay taxes on cryptocurrency?

Taxes on Cryptocurrencies: How Much?

As has been said many times, the legislation has yet to set guidelines for framing crypto assets in a timely manner. Today we can only rely on some of the Revenue Agency’s decisions, which, if they do not clear our minds, at least provide the direction to follow.

If we have so far analyzed taxes on cryptocurrency for non-entrepreneurs, then let’s try here to consider how the company holds these assets, what Bitcoin value should be recorded and whether this constitutes taxable income.

Is it possible to put cryptocurrencies on the balance sheet?

As expected, in our legal system we do not find a uniform legal qualification for cryptocurrency; The only definition we have is “virtual currency” that is valid for purposes of anti-money laundering legislation. This general uncertainty is also reflected at the accounting level, since our civil law does not provide any indication regarding the classification of crypto assets on the balance sheet. At the international level, the issue of the classification of cryptocurrencies in financial statements has been addressed by the Committee on Interpretations of International Financial Reporting Standards (“IAS/IFRS Committee”). According to the IAS/IFRS Committee, Virtual currencies can be written into two different categories on a company’s balance sheet: intangible assets or inventories.

intangible assets

If the company that owns the assets does not have them as assets that are normally intended for sale in the normal course of their business, they will be able to insert the value of Bitcoin or other cryptocurrencies among the intangible assets. Specifically, as per IAS 38, it talks about intangible assets by referring to “A non-monetary asset is identifiable without physical consistency.

It can be recognized if:

  • can be separated, i.e. can be separated or separated from the entity and sold, transferred, licensed, leased or exchanged;
  • Derived from contractual or other legal rights.

Virtual currencies meet the definition of intangible assets in IAS 38 because they are non-monetary assets, in addition to being individually separable, sold, or exchanged assets.

The value of bitcoin is included in the company’s balance sheet according to international guidelines

the exams

If the assets held are intended for sale in the normal course of business, the situation changes slightly: the company will be able to enter the value of bitcoin or other cryptocurrencies into the stock item. IAS 2 defines the characteristics of these assets, which are:

  • held for sale in the ordinary course of business; or
  • workers in production operations for sale; or
  • In the form of materials or supplies of goods to be used in the production process or in the provision of services.

Subsequently to the IAS/IFRS Committee, the AICPA published a document in which the characteristics of virtual currencies correspond to those of intangible assets, but are unlikely to be similar to financial instruments or stocks. AICPA is nothing more than a representative organization of the American accounting profession. From reading the post it becomes clear first of all that cryptocurrencies cannot certainly be considered financial instruments. This is because:

  • that it does not meet the definition of cash or cash equivalent, as it is not legal tender and is not authorized by sovereign states; And
  • They cannot be classified as financial assets, since they do not represent an investment in the capital of a third party and do not give rights to receive money or other financial instruments.

Also, according to the US Federation, virtual currencies can never be considered as stocks, as they lack physical consistency. Thus, it is understandable to classify cryptocurrencies according to star accountants: the value of Bitcoin or other cryptocurrencies must be included within the intangible assets.

The value of bitcoin in the company: what does Italy say?

Have a look at the international overview, Let’s check the Italian Accounting Principles Report. That is, let’s try to understand how we can include crypto assets on the balance sheet if we decide to buy them with our company. Referring to Italian accounting principles, it seems unlikely that virtual currencies would be classified as:

  • Cash and cash equivalents (OIC 14);
  • Credits (OIC 15);
  • Financial Instruments (OIC 32).

Similar to the international trend, it seems that On the balance sheet, cryptocurrencies can be classified as intangible assets or stocks. Intangible fixed assets are defined in OIC 24, as equal. 4, like “Activities that are usually marked by a perceptible deficiency […] It consists of costs that do not exhaust their usefulness in one period but show economic benefits over several years.

They include:

  • multi-year fees (start-up and expansion costs; development costs);
  • Intangible assets (industrial patent rights and intellectual property rights; liens, licenses, trademarks and similar rights). “

The future economic benefits arising from an intangible fixed asset include: Revenue from the sale of products or services, or the provision of costs or other benefits arising from the use of intangible assets by the company. Specifically continuing, the Organization of Islamic Cooperation 24 defines intangible assets as “Non-monetary assets without physical consistency and represented by legally protected rights.An asset of this type:

  • can be separated, i.e. can be separated from the company and can be sold, transferred, licensed, leased or exchanged; or
  • They arise from contractual rights or other legal rights, regardless of whether these rights are transferable or separate from the company.

Therefore, there are no fundamental differences between the definition of “intangible assets” stipulated in international accounting standards (IAS 38, paragraph 8) and the definition of “intangible assets” provided in our legal system (OIC 24, paragraph 9).

How are inventories determined?

Inventories are defined according to the Italian Accounting Standard (OIC 13) as “Goods prepared for sale or that contribute to its production in the normal activity of the company.Also in this case there are no classification differences between the national context and the non-national context. Accordingly, the double possibility of Italian companies backed by international guidelines appears to include the value of bitcoin or other cryptocurrencies on their balance sheet, treating them as follows:

  • “Intangible fixed assets” where they have the ability to generate future economic benefits for the company and are intended to be held as assets and not as assets for sale in the ordinary course of business; unlike
  • “Inventories” are goods that the company’s activity is directed to produce or trade in. This category may be used where the company would normally use it to sell in the normal course of its business.

Cryptocurrencies as an asset to be included in the balance sheet?

The above-described crypto accounting methods seem to contradict the position taken by the Revenue Agency in Resolution No. 72 / E on 2/9/16 and in the subsequent answer No. 14 of 9/28/18. In these offices, the revenue agency reported that Virtual currencies should be treated in the same way as traditional currencies for accounting purposes as well. If this item is preserved, then there will be many consequences at the accounting level. On the one hand, it will be necessary to update the value of Bitcoins recorded in the financial statements at the exchange rate in effect on 31/12 of each year, and on the other hand, to record any positive (and therefore taxable) or negative (and therefore deductible) values ​​in the income statement for the balance the individual.

Let’s try to give an example.

Let’s consider a company that buys bitcoin for 40 thousand euros on June 1 and treats it as a foreign currency, respecting the indicators of the Revenue Agency. On 12/31 Bitcoin itself was worth €50,000. How should the company act? He will have to update his Bitcoin value to 50,000 euros, record a capital gain of 10,000 euros and pay taxes on the latter. Suppose that on 31/12 of the following year, the value of bitcoin reverted to 40,000. What would have happened? Essentially, the company was anticipating taxes that were not due in the past.

The value of bitcoin on the balance sheet: an intangible asset or a stock?

It seems that this type of behavior should be respected by those companies that carry out instant purchase / sale of cryptocurrency on behalf of clients (the so-called “exchanger”); While it may prove unsuitable for companies investing in cryptocurrency for various purposes. (Source: “Ires’ Predicament for Those Investing in Cryptocurrencies” IlSole24ore).

This principle is combined in the recognition of the latter that cryptocurrencies can be classified in one of the two categories mentioned several times: intangible assets or stocks, and not foreign currencies. For the former, depreciation deduction limits must be respected and capital gains/losses must be taken into account (Articles 103, 86 and 101 Tuir).

With regard to inventories, loading/unloading criteria will be considered and it is clear that revenue earned after sale must be taken into account (Articles 92 and 85 Tuir).

In either case (intangible fixed assets or inventories) taxation of any unrealized capital gains i.e. capital gains derived from mere valuation will not be considered. It would be possible to avoid attributing financial fitness only to the accrued values ​​and foreseeing taxes in the absence of real profits. (Source: “Direct Taxes on Crypto for Taxable Entrepreneurs, IlSole24ore). In other words, Taxable potential capital gain should only be calculated when the asset is transferred, not every 31/12 of every year. Unless the company in question is a stock exchange.

In conclusion, an exchange that has crypto assets in its belly should treat them like currencies. He will be required to update its value on 31/12 of each year and record any capital gains or losses on the income statement. Otherwise, a company that buys cryptocurrency for another purpose must include the cost of the purchase in the balance sheet, without having to update it every year. When such assets are sold, the realized capital gain or loss must be recorded; In the first case, the company will suffer ordinary taxes, and in the second case it will receive a deductible cost from its income and, in theory, a tax saving.

For more information on the state of your business, please refer to the tutor articles listed above.

Giamarco Briga (Studio Brega) is a chartered accountant and auditor, born in 1988. He deals with taxation, financial advisory, business planning and subsidized financing.
In 2015, he and his friend created CB Digital Company Srl, a company dealing with social media marketing, with a dual goal: to support multinational brands in developing communication strategies and to encourage the digitization of SMEs.
He loves to discuss innovation: for several years now, blockchain technology and distinct economic dynamics have been his passion, and promoting its use by SMEs is one of his goals.

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