The Brazilian Federal Tax Service wants investors to pay taxes on profits from cryptocurrency trading, even if there is no exchange into the national currency of Brazil.

The Brazilian Federal Reserve System (RFB) announced that Brazilian investors in the crypto asset market will have to pay income tax on transactions related to the same type of cryptocurrency exchange; for example Bitcoin (BTC) instead of Ethereum (ETH).

The RFB statement was published in the Diário Oficial da União and was the result of a consultation by a citizen of the country with the regulator. Late last year, the group released a statement stating that trading between cryptocurrency pairs is taxable, even if there is no conversion to real (Brazil’s national currency).

While not specifying what is meant by “gain” as there is no capital gain in fiat currency when one crypto asset is swapped for another, it is noted that there is still an obligation to pay taxes on the final pay profit:

“Capital gains calculated on the sale of cryptocurrencies when one of them is used directly to purchase another, even if the purchased cryptocurrency has not previously been exchanged for reais or other fiat currency, are subject to personal income tax.”
However, it should be noted that not all crypto investors are required to declare their trades, as the regulator has determined that only investors trading cryptocurrencies worth more than BRL 35,000 (approx. USD 7,263.67) have to pay income tax .

“Capital gains from the sale of cryptocurrencies are exempt from income tax if the total value of sales for the month of all types of crypto assets or virtual currencies, regardless of their name, is equal to or less than 35,000.00 Brazilian reais (thirty-five thousand reais)” , explained RFB.

Federal MP Kim Katagiri (Podemos or National Labor Party) previously said he considered the IRS proposal illegal and called on the National Congress to issue an executive order to immediately suspend the decision.

According to Katagiri, the regulation on the calculation and payment of the IRPF (Individual Income Tax) stipulates that capital gains are obtained only in exchange for currencies (Articles 134 and 136 of Decrees 9580 and 2018), which is not the case when trading similar crypto- Assets.

“In an exchange between crypto assets, there is no exchange with a currency; one crypto asset is exchanged for another, so there is no capital increase,” Katagiri said.

The parliamentarian argued that according to Article 110 of the Tax Code, tax legislation cannot change the definition of private law entities and therefore the Federal Tax Service has no power to change the understanding of the Tax Code.

“If the Union is to tax exchanges of crypto assets, legislative innovation is required, and even then there may be doubts about the constitutionality of the new law. What we have is a totally illegal interpretation by tax authorities that clearly goes beyond regulatory powers,” Katagiri said.

Brazilian investors in the cryptocurrency market have been required to report their crypto assets to the regulator since 2016. In 2019, the country’s federal tax agency issued Regulation Order 1888, which stipulates that all national exchanges are required to report all cryptocurrency transactions between users. monthly to the regulator.

Source: CoinTelegraph