Denmark Considers New Crypto Tax Framework: Proposal Could Include Unrealized Gains

TLDR:

• Denmark’s Tax Law Council has proposed new crypto taxation models – no laws have been passed yet
• The main proposal suggests inventory taxation, treating crypto like stocks/bonds at 42% tax rate
• Changes wouldn’t take effect until at least 2026 if approved
• Some news outlets incorrectly reported this as already being law
• The proposal aims to allow loss write-offs and create more consistent crypto taxation rules

Denmark’s Tax Law Council has proposed new cryptocurrency taxation rules that could reshape how digital assets are taxed in the country. The council released a 93-page report on October 23, 2024, outlining several potential approaches to crypto taxation, with implementation possibly starting in 2026.

Tax Minister Rasmus Stoklund announced that the Tax Law Council submitted recommendations aimed at creating “more reasonable taxation of crypto investors’ gains and losses.” The proposal comes after years of work, with the council studying various taxation models since 2021.

The council’s report presents three different taxation models, with a preference shown for the inventory taxation approach. Under this model, all assets – including both cryptocurrencies and traditional investments like stocks and bonds – would be valued together, with their total change in value subject to taxation.

A notable feature of the proposed framework is a 42% tax rate on capital gains. This rate aligns with recent changes in Italy, where cryptocurrency capital gains tax is set to increase from 26% to 42%.

The inventory taxation model would require Danish citizens to pay taxes on their cryptocurrency holdings from the day of acquisition, regardless of whether they’ve sold their assets.

This means investors could be liable for taxes on unrealized gains, treating their portfolio as if it had been sold on a specific date each year.

One key aspect of the proposal aims to address current inequities in the system. The new framework would allow investors to deduct losses against gains on other crypto assets, a feature currently lacking in Denmark’s crypto tax structure.

The proposal also includes plans for increased transparency and reporting requirements. Cryptocurrency service providers would need to report user transactions, with the government planning to share investor data internationally by 2027.

Despite some news outlets reporting these changes as confirmed law, it’s important to note that these are only recommendations at this stage. The Danish parliament won’t receive the actual bill until early 2025, and it must then undergo careful evaluation before any decisions are made.

The Tax Law Council’s recommendations come as part of a broader effort to simplify the tax system and eliminate what it sees as unfair treatment of cryptocurrency investors. Currently, some crypto holders face heavy taxation under existing rules.

Under the proposed system, all cryptocurrency assets would be taxed according to the same set of rules, removing the current disparities in how different digital assets are treated for tax purposes.

The timeline for implementation remains tentative. Even if approved, the new rules wouldn’t take effect until January 2026 at the earliest, giving investors and financial institutions time to prepare for the changes.

The council’s report also addresses international cooperation in crypto taxation. The proposal includes provisions for sharing investor data across European Union nations, indicating a move toward more coordinated cryptocurrency regulation.

Minister Stoklund emphasized the need for clearer and more appropriate rules in this area, stating that he looks forward to presenting the bill and discussing it with parties in the Folketing (Danish Parliament).

The Danish proposal reflects a growing trend among governments to develop more comprehensive cryptocurrency taxation frameworks. Similar initiatives have been seen in other countries, with various approaches to handling digital asset taxation.

Several misunderstandings arose when the news first broke, with some media outlets incorrectly reporting that Denmark had already enacted these changes. The Tax Law Council’s recommendations are still subject to parliamentary review and approval.

The proposal represents Denmark’s attempt to balance effective taxation with fair treatment of crypto investors, while also addressing concerns about tax evasion and regulatory oversight in the cryptocurrency market.