The 2019 Finance Act introduced a special regime for the taxation of capital gains on digital assets made by individuals. Since then, the practice of economic actors in the digital assets sector has evolved considerably. We can mention in particular the following practices:

  • The advent of Non-Fungible Tokens (NFT);
  • The use by individuals of mixed payment cards with digital asset debit ;
  • The lending of digital assets; or
  • Decentralised finance.

Pour les professionnels, aucun dispositif spécifique n’a été créé, malgré des obstacles majeurs à l’essor du secteur.

We propose below proposals to cover three key objectives: to meet the challenges created by new uses, to encourage financing in the real economy by crypto-assets and to refine the regime established in 2019 for individuals by correcting its teething problems.

Répondre aux enjeux créés par les nouveaux usages

Proposal 1 – Neutralisation of trade in digital assets for businesses

The recent development of digital assets, and in particular utility tokens which have an important role in the economic development of the sector, is hampered by a tax regime which leads to the recognition of a profit or loss on each exchange transaction.

The taxation of exchange transactions leads to the following problems:

  • A liquidity problem: while the tax will have to be paid in euros, the exchange between two digital assets does not generate an inflow of euros for the company, which is therefore forced to sell part of the incoming asset to pay the tax liability. Most digital assets are much less liquid than Bitcoin or Ether (the most popular digital assets). Understandably, this need to liquidate assets can sometimes pose significant difficulties for the company and even severely hamper its entrepreneurial freedom.

  • A volatility problem: if the company does not immediately sell some of the incoming digital assets for euros, and the asset price falls significantly, then the company is left with a tax liability that it cannot afford to pay.

  • A problem of administrative burden: if a company carries out a large number of exchanges between digital assets (in some cases, several transactions per second), the calculation of the capital gains associated with each exchange is excessively complex, if not impossible.
    For these reasons, French companies are unable to carry out exchanges between digital assets without exposing themselves to considerable tax risks.

However, in general, a large circulation of digital tokens is essential for the development and use of blockchain technology. By way of illustration, here are three use cases that require the exchange of digital assets and are therefore inaccessible to French companies:

  • Asset swapping to use decentralised finance applications;
  • Exchange in order to use a right attached to the purchased token (e.g. decentralised governance, staking, …);
  • Trading to bring more liquidity to the market.

This is also a major issue for companies subject to the micro regime. Under this system, the company is taxed on its turnover after applying an allowance. However, each exchange transaction generates a turnover equal to the value exchanged. Given the practices of digital asset trading, the tax is in practice calculated on a turnover that is completely disconnected from the economic reality of the activity, even after taking into account the flat-rate allowance of the micro regime.

This issue was already identified and addressed for individuals in 2018. We propose to adapt the tax regime applicable to companies to bring it closer to the arrangements for individuals.

In order to facilitate the circulation of digital assets and to secure the activities of the players in this sector, we suggest creating a regime of neutralisation of exchange operations. Such a regime would also facilitate controls on operations that are often complex and of very large volume.

It would be possible to envisage a regime similar to that for individuals, which would be all the easier to put in place as companies are subject to accounting obligations.

We have also considered other schemes to achieve this result by ensuring that unrealised gains are taxed on disposals against euros.
As an example, it could be envisaged that each year a tax form would be drawn up with, for each class of digital asset held by the company, the unrealised capital gain on that asset corresponding to the sum of the capital gains recorded in respect of previous exchange operations. Unrealised capital gains would be carried forward for each category of asset according to the exchanges carried out and would be taxable when the asset is sold for euros (or in payment for a good or service, other than a digital asset).

Proposal 2 – Create a specific tax regime for NFT operations

The development of Non-Fungible Tokens (NFT) is now exponential and concerns all aspects of the economy: art or artistic creation, fashion, games, sport and perhaps the whole of property rights.

From a legal standpoint, the qualification of NFTs is uncertain. Some of them could fall within the definition of a digital asset provided for in Article L. 54-10-1 of the Financial Monetary Code. Others would fall under the tax regime of the asset underlying the NFT (a card, a work, a digital object within a video game, etc.).
In terms of personal taxation, this uncertainty is a source of insecurity for an entire developing ecosystem, whether it be issuers of NFTs (such as artists), purchasers and/or users of NFTs, or NFT exchange platforms.

This situation is not satisfactory. Indeed, it is likely to result in a work of art attached to a token having a different tax regime from other works of art. The same applies to applications of NFTs in the fields of sponsorship, artists’ remuneration, ticketing, sale of video footage, etc.
The current rules could lead to the inclusion of NFTs within the overall portfolio of digital assets (and in particular fungible assets) in order to apply the regime of Article 150 VH bis, which poses obvious problems with regard to their valuation.

⇨ We consider it essential to legislate on this subject by expressly excluding NFTs from the general regime of capital gains on digital assets of Article 150 VH bis of the CGI.

It also appears necessary to introduce a specific regime allowing NFTs to be assimilated, under certain conditions, to the underlying asset they represent.

Proposal 3 – Legislate on the tax neutrality of digital asset lending

Le jugement du Tribunal de commerce de Nanterre du 26 février 2020 a confirmé que les actifs numériques sont essentiellement des biens fongibles (à l’exclusion des NFT). Il en découle que le prêt d’actifs numériques relève en principe des règles du prêt à consommation et non du prêt à usage. Or, le prêt à la consommation entraîne changement de propriété du bien. Il en va de même de la plupart des conventions de blocage d’actifs numériques que nous avons pu examiner.

From a tax point of view, these transactions could be analysed as transfers for valuable consideration which in principle constitute a taxable event.

As far as individuals are concerned, Article 150 VH bis fortunately neutralises transfers of digital assets between them. Thus, a loan or blocking of digital assets as security for other digital assets should not give rise to taxation. On the other hand, a loan in euros in exchange for the blocking of digital assets could constitute a taxable event. From a tax point of view, these transactions could be analysed as transfers for valuable consideration which in principle constitute a taxable event.

For professionals subject to corporate income tax, industrial and commercial profits or non-commercial profits (in the case of minors in particular), it is worth highlighting the position of the French Accounting Standards Authority (ANC) in its regulation of 24 July 2020. The ANC recommends recognising the loan receivable at the book value of the loaned tokens. From an accounting point of view, this treatment leads to the neutralisation of the effects of the loan contract. The tax consequences of this position should be validated by excluding any taxation on the transfer or return of the digital assets.

In order not to hinder the development of digital asset transactions in France, and in particular the growth of the decentralised finance sector (DeFi), we propose to expressly provide that the various agreements to lend or block digital assets as collateral for a loan do not constitute a taxable event, either for individuals or for professionals.


Proposal 4 – Create a suitable regime for the transfer of digital assets into companies

Currently, the incorporation of digital assets leads to taxation of the unrealised capital gain on the transferred assets.

This treatment amounts to a practical obstacle to any form of contribution to a company insofar as the individual who contributes digital assets receives company shares in exchange, while he or she must pay capital gains tax in euros, on a value determined at the date of the contribution and which is likely to differ abruptly from the balance sheet value at the close of the financial year.

Encouraging the transfer of assets to companies by providing for a more appropriate regime would make it possible to finance the real economy, for example by imposing specific conditions on the reinvestment of the sums resulting from the transfer of digital assets.
This proposal was initially mentioned in the Finance Committee’s information report on virtual currencies dated 30 January 2019 by Mr Eric Woerth and Mr Pierre Person. The report concludes that this measure is essential to make France an attractive territory. However, it is feared that, by drawing on the regime for the transfer of securities under Article 150-0 B ter of the CGI, the assimilation of digital assets to securities could lead to contagion to other movable property. The rapporteur stresses that this risk has not been verified.

⇨ We believe that a favourable regime for the incorporation of digital assets would send a strong message and provide very significant funding for many companies.

We are convinced that this is an essential regime and that a number of conditions can be defined to ensure its effectiveness.

Proposal 5 – Create a specific tax regime for digital asset allocations to employees, partners and associates

Companies that have issued or are issuing tokens want to be able to motivate people who participate in the creation of a project by awarding them tokens.

The qualification of this attribution depends on the relationship between the issuer and the beneficiary, which implies a sometimes complex analysis in a simple situation resulting from the will to directly interest the people involved in the project.

⇨ Given the very specific nature of the tokens issued, which often represent the economic value of the project carried by the company, we propose the creation of a favourable tax framework for the allocation of digital assets to people participating in the project in order to encourage this method of remuneration aiming to interest stakeholders in the company’s project.

Proposal 6 – Introduce a simplified regime for individuals for digital asset payments

In recent years we have seen the development of payments for transactions with digital assets. They are increasingly used as a means of payment and this development has been accompanied by new uses. Proposal 6 – Introduce a simplified regime for individuals for digital asset payments

As an example, we mention the growing use of mixed payment cards, backed by a digital asset account. These cards are often issued by exchange platforms (and, increasingly, by traditional payment network players) and allow payments to be made with digital assets in a simple and secure way.

As the law currently stands, each payment transaction carried out by an individual is a transfer for consideration of digital assets for the purposes of Article 150 VH bis of the CGI.

This regime needs to be adapted to allow for the multiplication of payment transactions. It should be emphasised that simplifying this regime would also allow for a better control by the tax administration.

It would thus be possible to propose a simplified regime for private individuals, based on certain criteria (volume of transactions, overall transfer price, etc.). This could involve, for example, a flat-rate allowance on the total amount of the transfer prices of transactions carried out during the year.

In addition, the BOFIP could alleviate the reporting obligations of individuals by expressly authorising individuals to group transactions by day or by order (in particular when an order is executed in several times on the platform, and sometimes over several days).

⇨ Nous suggérons la mise en place d’un régime d’obligations déclaratives simplifié pour les particuliers afin de permettre l’utilisation des actifs numériques comme moyen de paiement.


Proposal 7 – Define precise legal criteria on the distinction between professional and non-professional activities

The terms of Article 150 VH bis of the CGI lead to a distinction being made between income from a professional activity and non-professional income from sales by a private individual.

The text does not provide any criteria for qualifying an activity. The BOFIP puts forward the “usual” and “occasional” criteria, which is not in line with the text of Article 150 VH bis, nor with the case law of the Conseil d’Etat.
Moreover, it is subject to a very subjective assessment that is conducive to uncertainty and litigation.

This state of the law is unsatisfactory and leads many people to move abroad to escape the uncertainty. We stress that the consequences of a requalification (in either direction) can be extremely severe, particularly because of the compulsory application of the micro regime without the possibility of a posteriori option.

Confusion is also fuelled by the forms drawn up by the tax authorities, which are unsuited to the practices of private individuals (in particular the annexed form 2086 relating to the declaration of capital gains on digital assets is limited to 20 transactions per year).

The same confusion exists for the tax regime of non-professional minors. The borderline with professionals should be defined and their uncertain tax regime clarified.

We consider it essential that the law defines precise criteria that will enable taxpayers to assess and secure their situation.

Proposal 8 – Allow capital losses to be carried forward and provide for the possibility of opting for taxation on a progressive scale

Article 150 VH bis of the CGI only allows a possible capital loss to be offset against capital gains of the same nature realised in the same year. An overall annual loss of value cannot be carried forward to subsequent years and is therefore written off.

Given the high volatility of digital assets, this rule seems to us to be very severe and has no justification. By way of comparison, capital losses on securities can be carried forward for the next 10 years under Article 150-0 D.

It should be noted that the 12.8% income tax rate on capital gains on digital assets may be disadvantageous for low-income taxpayers, compared to taxation on the progressive scale. We suggest that it should be possible for a taxpayer who has an interest in doing so to opt for progressive taxation of capital gains on digital assets. We recall that this option is in principle available for income from securities subject to the 12.8% rate.

⇨ We suggest allowing taxpayers to carry forward capital losses on digital assets realised by an individual, as well as the possibility to opt for progressive capital gains taxation.

Other corrections and clarifications

The following are some fixes that will provide taxpayers with greater security in managing their tax obligations in a quick and simple manner.

Clarify in the BOFIP the tax regime of digital asset allocations (by airdrop, hardfork, …)
The methods of allocating digital assets have evolved considerably. It is common for digital assets to be allocated by airdrop (distribution of tokens by an issuer under certain conditions with a view to encouraging their use) or following a hardfork (following a modification of the rules of a blockchain leading to a consensus among the various players), without any action on the part of the beneficiary and potentially without his knowledge.
In addition, more and more individuals are receiving digital assets by staking (mining technology based on the deposit of a number of digital assets). This is often a passive activity for them, and the non-commercial profits regime applicable to miners does not seem to be adapted to this use.

It is proposed to confirm that these allocations do not constitute a taxable event. Only their transfer for consideration is likely to generate taxable proceeds on the basis of Article 150 VH bis of the CGI.

Clarify in the BOFIP that donations of digital assets to associations are eligible for the income tax reduction
Donations of digital assets to associations are not eligible for the tax reduction provided for in Article 200 of the General Tax Code. This position is not found in the law or in the BOFIP, which admits several forms of donations other than manual donations of money. This is an unpublished position justified by the fact that the precise and exact valuation of the donation would not be possible due to the volatility of digital assets.

This position is questionable, especially as it is not published.

⇨ Nous suggérons de prévoir dans le BOFIP que les dons en actifs numériques, évalués par l’association bénéficiaire, ouvrent droit à réduction d’impôt. Cette mesure inciterait aux dons d’actifs numériques pour le financement des associations.

Increasing the number of columns on Schedule 2086
The 2086 form that must be completed to declare capital gains on digital assets can only contain a limited number of transactions (5 on the paper form, 20 on the online declaration). These limitations are a source of confusion for taxpayers, as it is common for an individual to exceed this number of transactions in a year.

We therefore suggest that the tax administration modify its form, at least in digital version, to allow, at least, a hundred transactions in a year.

Nous suggérons de prévoir expressément la possibilité de regrouper les opérations par journée ou par ordre (un plusieurs ordres pouvant générer de nombreuses opérations sur une plateforme).


Summary of ADAN’s proposals on taxation