Report: Denmark’s Tax Agency Is Sending Tax Compliance Letters to Crypto Users

Denmark-based cryptocurrency users have begun receiving letters from the Danish tax agency, Skattestyrelsen, requesting that traders provide a full background of all their cryptocurrency transactions, sources informed Cointelegraph on Dec. 10.

In its letters, Skattestyrelsen specifically asked crypto users to provide information about profits and losses for fiscal years 2016 to 2018, according to FIFO (First In First Out) principles. These principles represent a method of inventory valuation assuming that all goods are sold or used in the same chronological order in which consumers purchased them.

Furthermore, the tax agency asked for the rates used for each transaction, information on the purpose of acquiring digital currencies, and documentation regarding the creation of a cryptocurrency wallet.

Disclosure of crypto exchange services used

In terms of crypto exchange services, Skattestyrelsen requested that crypto consumers revealed the confirmation of their trading activity in the form of a screenshot featuring the individual’s name and an agreement on the creation of an account. 

In addition to that, Skattestyrelsen wants to examine crypto consumers’ account statements from their bank accounts for the aforementioned period. Robin Singh, founder of cryptocurrency tax startup Koinly, provided Cointelegraph with the letter. Singh commented:

“Many of our Danish users have received these letters, Skat is asking for a full breakdown of all their transactions and asking them to fix all past reports as well. 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.”

Skattestyrelsen’s first steps towards crypto user taxation

Skattestyrelsen turned its focus to crypto consumers late last year when it confirmed that it was “identifying” 2,700 individuals it said owed taxes on Bitcoin (BTC) gains. The agency intended to go after each individual with an eye to determining their payment obligations. Skattestyrelsen said at the time:

“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.”

In January 2019, the country’s Tax Council authorized Skattestyrelsen to obtain information on all trades of cryptocurrencies across three domestic crypto exchanges. At the time, the tax agency planned to make the first adjustments to tax treatment for specific cases based on the newly-acquired information before summer 2019.

In August, the agency received authorization to obtain information regarding cryptocurrency trading from 20,000 private individuals. 

Following the U.S. IRS practice

Skattestyrelsen thus follows the United States Internal Revenue Service’s (IRS) example. The IRS sent letters to 10,000 crypto investors to clarify crypto tax filing requirements and, in certain cases, compel them to pay back taxes. At the time, the IRS said that it asked some of the crypto investors to amend their tax filings, while compelling others to pay back taxes and/or interest and penalties.

In October, the IRS added a question on crypto ownership to the standard 1040 income tax form for the coming tax season. IRS specifically asked: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The question expects a straightforward yes or no, with no additional details requested.