Danish Skat collects information and sends warning letters to crypto investors evading taxes
Earlier this year, Skattestyrelsen (Skat) gave the green light to collect information about Danish crypto investors from three local exchanges. As a result, the tax authority has received information about 20,000 cryptocurrency traders.
Danish-based cryptocurrency users have begun to receive mail from the Danish tax authority. Skattestyrelsen (Skat), requires traders that they suspect to avoid taxes.
Skat specifically requires cryptocurrency users to provide information about profits and losses in the financial year 2016 to 2018, according to FIFO (First In First Out) instructions, read the letters. These principles represent an inventory pricing method that assumes that all goods are sold or used in the same chronological order that consumers have purchased them.
Furthermore, tax authorities require the exchange rate to be used for each transaction, information about the purpose of buying digital currencies and documents related to creating a digital wallet.
Skattestyrelsen requires recipients to revise their previous tax returns based on their cryptocurrency activities and alert penalties for non-compliance, according to a blog post from crypto startup Koinly.
The agency received permission to obtain data on Danish users of the three exchanges earlier this year, Koinly said, eventually gathering information about 20,000 individuals.
Filing taxes on cryptocurrency transactions is a difficult task as cryptocurrency traders often hold a number of exchange accounts, wallets and freely transfer cryptocurrencies between them. So there is no easy way to find an increase in capital for any particular transaction, says Robin Singh, founder of Robin Koinly.
In a blog post, Koinly said traders should seriously execute the letters and respond with the necessary information.
“This is only the first step in the fight against tax evasion and more serious actions will probably be taken on future investors, so it is advisable to bring your issue in as soon as possible”, the company said.
Danish Skat follows the US IRS tax footsteps
Skat can follow the lead of the US Internal Revenue Service (IRS). The IRS has sent a letter to 10,000 crypto investors to clarify their tax filing requirements and, in certain cases, force them to return the tax. At the time, the IRS said it had asked some cryptocurrency investors to amend their tax records while forcing others to pay back taxes and/or interest and penalties.
In October, the IRS added a cryptocurrency ownership question to the standard 1040 income tax form for the upcoming tax season. The IRS asked specifically: At any time in 2019, did you receive, sell, send, exchange or get any financial benefits for any virtual currency? The expectation question is simply yes or no; no further details are required.
HM Revenue & Navy, the U.S. tax authority, is also believed to be pressuring cryptocurrency exchanges to provide customers with name and transaction history in a tender to catch tax evaders this summer.