Warning Letters Issued to Crypto Tax Evaders by Danish Tax Authority

  • Traders must report data regarding the time from 2016 to 2018 on their profits and losses.
  • Tax authorities in the US and UK have also been pursuing crypto traders to ensure that taxes are paid on the money that they make.

As the definitions that cover cryptocurrencies evolve, countries have to decide how their taxes will apply. In Denmark, the tax authority has been pursuing consumers that have been avoiding the payment of their taxes that they should rightfully pay, due to their trading activity. Through these efforts, many cryptocurrency users are receiving letters that demand information about the way that they’ve traded these assets.

The authority, known as the Skattestyrelsen, also requested that the individuals who receive the letters change their tax returns previously filed to reflect the cryptocurrency activity. Anyone who doesn’t follow this directive is warned that they will face penalties for non-compliance, as described in a blog post by the Koinly crypto tax startup.

Koinly’s post explained that the agency was granted permission to gather information on the Danish crypto users from three exchanges. In total, the authorities found data on 20,000 individuals, leading them to urge crypto users to report their profits and losses from 2016 to 2018, among other details on their trading activity.

Furthermore, the respondents have to include the rates that applied to their transactions at the time, as well as the reason for their transactions. The letters further require the individuals to state their proof of the wallets they created, any applicable bank statements, and a statement that shows the current cryptocurrency holdings of the user. Robin Singh, the founder of Koinly, stated,

“Filing tax on cryptocurrency trades is a difficult task as crypto traders usually hold several exchange accounts & wallets and freely transfer crypto between them, so there’s no easy way to figure out what the capital gains are for any particular trade.”

Through the blog post, Koinly advises recipients to take the advisement of the authorities seriously, urging the affected individuals to respond with the information asked of them. The firm explained that this request for information is “just the first step in the fight again tax evasion,” warning that it is possible that the authorities will end up taking “more serious actions” going forward. Getting ahead of this transition is in the best interest of all crypto traders.

The focus on cryptocurrency investors started towards the end of last year, when the authority started finding individuals who had yet to pay their taxes on Bitcoin. At the time, Skattestyrelsen stated,

“If something does not match, we will contact them and ask for more information. However, how many people it is and what it may mean, it is still too early to say.”

This recent action by Skattestyrelsen is much like that of the Internal Revenue Service in the United States, which sent letters to cryptocurrency traders in August. These letters specifically targeted traders that they believed were not accurately reporting trading income, stating that the recipients were only given 30 days to respond. However, the trader had the ability to disagree with the IRS’s assessments.

The primary income tax form was modified by the IRS in October, now including a question regarding cryptocurrency and the money made from it. In the same month, the IRS released cryptocurrency tax guidance on this change.

In the United Kingdom, reports stated that the tax authority, HM Revenue & Customs, was also pushing cryptocurrency exchanges to give them details about customers, like their transaction histories. These efforts were evidently meant to catch tax evaders through the summer.

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