By Parham Rahim Zadeh


The ‘Cryptocraze of 2021’ has kicked off. Another `Bullish season` has started and that means that trading and holding cryptocurrencies by companies and individuals has become popular once more. With the most well-known cryptocurrency being Bitcoin.

But what is a cryptocurrency actually? What are its functionalities? And the most important question; How are we supposed to give cryptocurrencies the proper tax treatment when there is still so much ambiguity when it comes to its treatment?


Categories of Cryptocurrency

First of all, cryptocurrency can be subcategorized into Tokens and Coins[1]. The distinction between a coin and a token, is that a coin operates on its own Blockchain network and a token operates on an existing Blockchain network. Also, a coin (in the sense of acting as a means of payment) is also equated with a payment token.

Tokens can be again subcategorized in payment tokens, utility tokens, equity tokens and debt tokens[2].

  • Payment tokens are described as a means of payment, as money or as a means of transferring value[3].
  • An utility token[4] can be exchanged for a particular service or product issued by the cryptocurrency. So if Airbnb would issue their own cryptocurrency that can only be used on their platform, then this could qualify as an utility token.
  • Equity tokens could be the blockchain equivalent of shares in a company.
  • Debt tokens[5] are basically the same as loans, the debt tokens that the holder receives act as a proof of loan origination and entitle the holder to receive interest. A debt token most closely resembles a bond loan.


Issues arising because of cryptocurrencies

There are "gaps" with respect to the tax regulation of cryptocurrencies. These tax gaps arise because a vast majority of cryptocurrencies and cryptocurrency transactions are not visible to tax authorities. The transactions and cryptocurrencies that are subsequently visible are sometimes misclassified, for example according to the Dutch Tax Authority (“DTA”) the possession of cryptocurrency by an individual is always taxed in box 3 (income from savings and investments) for personal income tax[6]. But in some cases the income generated by the cryptocurrency (equity token) could be placed in box 2 when it would generate income due to the substantial interest that the holder of the cryptocurrencies has in a particular cryptocurrency. This income could for example be the profits (the cryptocurrency equivalent to) that are received for owning the cryptocurrency. This income is issued by the Blockchain network or the issuer of the cryptocurrency.



So how do we get cryptocurrencies to have a proper tax treatment?

First of all, cryptocurrencies and cryptocurrency transactions have to be made visible.

The anonymity of cryptocurrencies is a barrier. There have been plans for  cryptocurrency exchanges to eventually be required to share information about the users of their platform under Anti Money Laundering (AML) laws. How this can be enacted is still not concrete. But there are plans in the making. A formal consultation on a directive proposal by ECOFIN[7] in regard to expand the tax information exchange framework to include cryptocurrencies and 'e-money (this directive proposal is known as DAC8) is scheduled for the first quarter of 2021 and the directive proposal should be ready in the third quarter of 2021[8]. But that only solves part of the problem. This is because there is a fairly large portion of cryptocurrencies in wallets that are still not visible because they are located outside of exchanges or are hidden from the scope of Tax Authorities by means of anonymous wallets without any KYC verification.


Tax recognition of different categories of cryptocurrencies

Another important step in the taxation of cryptocurrencies is that it is important that OECD member states recognize for tax purposes that there are different types of categories of crypto currency. The  particular importance is the tax treatment of equity tokens and of debt tokens. Equity tokens are substantially the same as shares, even though they do not legally qualify as shares. In a legal sense from a Dutch perspective, shares are defined under Dutch national law according to Article 2:190 of the Dutch Civil Code as "Rights that do not include voting rights or an entitlement to distribution of profits or reserves shall not be regarded as shares." This article leaves a lot of room open for what a share can be.

Based on the legal text, it can be stated that a share must provide a voting right or a profit right. An equity token can actually provide both rights. An equity token actually gives a right to distribution of profits; for example, dividends in the form of "Gas" in the case of the cryptocurrency NEO. An equity token can actually also give a right to vote, the more tokens a 'shareholder' holds the more control the shareholder has; think of a 51% attack[9].

Herein, substance over form[10] prevails. Because holders of equity tokens are not treated as shareholders under current legislation, this group of taxpayers does not receive the same tax treatment that regular shareholders do; which would be a personal income tax treatment of the income generated by their shares falling in box 2. This impedes a level playing field and could result in tax structures being created that, by means of cryptocurrencies, places the taxation of profit outside the scope of (the correct) tax legislation.

Debt tokens are in principle equivalent to bond loans, the debt tokens received by the holder act as a proof of loan provision and entitle the holder to receive interest[11]. The substance-over-form principle also applies to debt tokens, which means that debt tokens must be treated essentially like bond loans for tax purposes.



Tax authorities should not only access and request information from cryptocurrency exchanges but also from the cryptocurrency itself. This does go against the anonymous character of cryptocurrency. A potential solution to battle anonymity is that tax authorities are added as full nodes to cryptocurrencies. They can then own the full copy of a Blockchain.  The cost of this would be roughly about $20 million[12] for f.e. Ethereum. Under treaties and guidelines around information exchange, the Netherlands can then share its transaction data with other treaty countries. But this does not completely solve the problem of anonymity. This primarily makes all transactions in a blockchain visible but users outside exchanges still remain anonymous.

A secondary effect of such a measure is that a state (in)directly supports cryptocurrencies. This is a requirement for a coin to qualify as cash. In addition, this measure can also be a step in the right direction to recognize coins such as Bitcoin as “money”. Because it will be put into use by the states. And one of the conditions set by the International Monetary Fund to qualify a unit of currency as “money” is that a state legally designates it as such, in addition it  must also be generally accepted as a means of payment[13].

I would recommend treating equity tokens the same as shares and to treat debt tokens the same as bond loans for tax purposes because they are substantially the same. In this aspect equity tokens and debt tokens could also qualify as hybrid financial instruments for the purpose of ATAD2 (incorporated in the Dutch corporate income tax starting at article 12aa CITA). In this case the correct local tax treatment should be applied to ensure taxation of dividend or interest paid on these tokens[14].

It is also important that the OECD harmonizes the qualification of equity tokens and debt tokens in all member states. This harmonization will ensure that in cross-border situations, disputes about what kind of source of income a cryptocurrency generates, with respect to equity tokens (gas acting as a dividend) or debt tokens (interest payments to the debt token holder) will be minimized. This also reduces the likelihood that cryptocurrencies can be used for tax avoidance - and evasion and abuse of tax treaties.

[1] Bal, A. (2019). Taxation, Virtual Currency and Blockchain, par [B]) pagina 38

[2] Bal, A. (2019). Taxation, Virtual Currency and Blockchain hoofdstuk 3 pagina 39

[3] M.F. Huber, S. Guler & J. Dumont, By the Same Token: Swiss Tax Questions in the Context of Initial Coin Offerings, 20 Derivs. & Fin. Instrums. 3 (2018), 1 Journals IBFD (accessed 18 May 2018)

[4] M.F. Huber, S. Guler en J. Dumont, ‘By the Same Token: Swiss Tax Questions in the Context of Initial Coin Offerings’, 20 Derivs. & Fin. Instrums. 3 (2018).

[5] Bal, A. (2019). Taxation, Virtual Currency and Blockchain p. 56

[6] [6]  Belastingdienst. (z.d.). Cryptovaluta (zoals bitcoins). Geraadpleegd van

[7] the Council of the European Union

[8] Automatische uitwisseling van informatie uitbreiden naar cryptovaluta en ‘e-money’. (2021). Vakstudie Nieuws, 2021(2.17), 45.

[9] A 51% attack on a blockchain refers to a miner or rather a group of miners trying to control the network with more than 50% of the mine capacity or hash-rate. Once this happens they can make it possible to prevent new transactions taking place or being confirmed.

[10] Ondernemingsrecht . (2009). Overpeinzingen naar aanleiding van het ’substance over form’-beginsel in het jaarrekeningenrecht (21ste editie).

[11] Bal, A. (2019). Taxation, Virtual Currency and Blockchain p. 56

[12] Medium, & Petrov, A. (2018). An economic incentive for running Ethereum full nodes.

[13] IMF. (2016). IMF Staff Discussion Note - Virtual Currencies and Beyond: Initial Considerations. Par B, part 19

[14] In the Netherlands this trax treatments starts with article 12aa CITA.


This document provides general information on the subject and does not constitute a legal opinion or recommendation. Consulting a specialist is recommended before taking an action. No claim arising from the content of or relating to this document can be asserted against NAZALI.