On March 25, 2014 the Internal Revenue Service (IRS) of the United States issued Notice 2014-21 stating that virtual currencies such as bitcoins will be treated as property, rather than a form of currency, for federal income tax purposes.
The Brazilian Federal Revenue Service (Receita Federal do Brasil – RFB) followed the same approach adopted by the IRS. The Brazilian newspaper Folha de S.Paulo announced on April 7, 2014 that bitcoins and other virtual currencies are deemed to be financial assets for income tax purposes. Therefore, these virtual currencies must be declared in the annual income tax return as other goods by any taxpayer who had the equivalent in Brazilian currency to one thousand Reais (R$ 1,000.00) or more in bitcoins or other virtual currencies on December 31, 2013.
It is also necessary for the taxpayer to collect the income tax at the rate of 15% on capital gains on any transaction exceeding R$ 35,000.00 carried out during the last five years. Now, the tax must be paid with penalty and interest. There is no conversion rule of the virtual currency into the Real, but the RFB accepts the use of quotations disclosed publicly by private sites.
In the case of Brazil the RFB has concluded that it is possible to collect the tax and information without changing the legislation. This position is only valid for income tax purposes and is based on the RFB´s understanding that virtual coins can be regarded as an asset for which tax rules already exist. According to the RFB, however, bitcoins are not currencies, securities or even financial assets in Brazil, as defined in the applicable regulations issued by the Central Bank of Brazil (Banco Central do Brasil – Bacen) or by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM).
The RFB has created a working group on electronic transactions to monitor the evolution of this market and its impact on the economy and to verify whether transactions with bitcoins or other virtual coins will become relevant enough to require further action and possible changes in the legislation.
The tax authorities control the passage of these resources through the "real world" by means of the monitoring of bank accounts, credit cards or debit cards and purchase of goods, for example. The prohibition of trading with virtual coins is ruled out at this point.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.