Water and oil. This best describes the relationship between cryptocurrencies and taxes. The current taxation model dates back many years ago before Nakamoto launched cryptos. This makes it quite difficult to adhere to the taxation policies for crypto traders. One crypto trader in Sweden knows this best and now owes the government $885,000 in taxes for his crypto trading business.
Linus Dunkers began trading in Bitcoin back in 2014. Back then, not many traders were active traders and he had to learn most practices along the way. Being a law-abiding citizen, he contacted the Swedish tax agency to declare his activities. He was ready to pay his taxes which he thought would be a few thousand dollars at most. He was in for a surprise.
Men In Black
One day, he had unexpected visitors early in the morning. As he explained to Swedish national broadcaster SVT, there were at least four agents from the tax agency on his doorstep. Two of them came in and sat down on the couch as the other two explained to him just how dire his situation was.
The agents had done thorough research on him and knew everything about him. They knew the model of the car he drove, they knew about his summer cottage. They even knew the name of his dog Charlie.
Dunkers had traded Bitcoin ‘tens of thousands of times.’ He had traded around $2.8 million worth of Bitcoin. However, as any crypto investor would know, the profit margin isn’t all that big on most days. However, the tax agency had done its calculations, and they told him that he owed $885,000 in taxes.
Dunkers told SVT that the sum is at least three times the profit he had made over that time.
It’s absurd. I will pay 300 percent of the profit instead of 30 percent, it should not be legal.
The tax agency is reportedly treating his business as a business activity, further compounding his challenge. Dunkers has challenged the taxation and the case is currently in the Administrative Court. However, the control coordinator for the tax agency, Henrik Kisterud, believes that the agency is well within its rights to demand the tax.
We should not go here and say that we are 100% safe. But we think we have a good basis in these investigations where we have made judgments about business activities
The tax agency has intensified its hunt for crypto traders in the country tenfold in the past year. In 2018, the agency opened investigations into at least 400 crypto traders according to figures seen by the SVT. In 2017, there were less than 50 such investigations.
While the agency is well within its right to pursue those who abscond tax, Dunkers believes its approach is counter-productive.
Instead of encouraging people to do the right thing, they encourage people to hide
Dunkers is not the first person to owe the government hundreds of thousands of dollars in taxes. Two months ago, we reported about a college kid who invested $5,000 in cryptos and ended up owing the government $500,000 in taxes. The crypto taxation model clearly has a long way to go.