Cryptocurrencies and Criminal Liability: Roughly EUR 48 million omitted from the tax return

In an international context where the cryptocurrency market is rocked by numerous scandals, we notice that these operations come to the investigators’ attention even in Romania.

One of the largest trading platforms, FTX, has recently declared bankruptcy in the United States following $6 billion withdrawals in 3 days. Current data suggest that the platform still owes more than $3 billion to creditors. Former FTX CEO Sam Bankman-Fried has been extradited from the Bahamas and the Manhattan Federal Court has ordered his release under judicial review on bail during the criminal trial. He is charged with 8 criminal counts, including fraud and money laundering. His associates, Gary Wang and Caroline Ellison, admitted the charges but Sam Bankman-Fried pleaded not guilty before the Manhattan Federal Court. His trial will begin on October 2, 2023 and is expected to last about a month. Meanwhile, two suspects have been arrested in Estonia for a $575 million cryptocurrency scam. Estonian police have been investigating the case with the FBI and US authorities are seeking the extradition of the two Estonian nationals.

“In the autumn of 2022, 17 raids were carried out in our country as well, in the capital and in Dâmbovița, Ilfov and Olt counties, on persons suspected of tax evasion by hiding income obtained from transactions with virtual currencies and organized criminal group, according to the data provided by the General Inspectorate of the Romanian Police,” says Cristian Roman, Partner Lawyer at Iordăchescu & Asociații.

It is alleged that, between 2019 and 2022, 19 persons have constituted or joined an organized criminal group with the purpose of committing the crime of tax evasion by concealing the taxable source represented by income obtained from transactions with virtual currencies, resulting in a loss of over RON 3 million. According to a press release of the Tax Office [1], the inspectors of the General Directorate of Tax Fraud within ANAF [National Agency for Fiscal Administration] initiated controls to verify the income obtained between 2016 and 2021 from the trading of cryptocurrencies through various decentralized platforms, such as Binance, KuCoin, Maiar, BitMart, FTX.

“In a first phase, revenues of over EUR 131 million obtained by 63 Romanian citizens were identified. So far, DGAF inspectors [General Fight Against Fraud Department] have identified approximately EUR 48.67 million omitted from the tax return, in part or in full”, continues Lawyer Cristian Roman. These actions are carried out in order to increase the level of taxation and voluntary compliance among all categories of taxpayers, and as a result of the controls carried out by ANAF [National Agency for Fiscal Administration], it is not excluded that criminal proceedings may be brought in relation to the inconsistencies found. We recall that, by Law 30/2019, the Parliament introduced a new taxable source, namely income from the transfer of virtual currencies.

“According to Article 115 paragraph (1) Tax Code, as amended by Law 30/2019, “The income tax is calculated by withholding tax at the time the income payers grant the income, by applying the 10% rate on the gross income for the income referred to in Article 114, except for the income referred to in Article 114 paragraph (2) section l) and m)”. Exemptions to the withholding tax obligation include income obtained from the transfer of virtual currencies, governed by Article 114 paragraph (2) section m) of the Tax Code,” adds Lawyer Cristian Roman.

Thus, persons who earn income from the transfer of virtual currency are required to submit the tax return on income tax and social contributions owed by individuals to the competent tax authority, for each tax year, by May 25 inclusive of the year following the year in which the income was earned. The payment deadline is the same as the deadline for submitting the tax return.

According to the tax provisions, the 10% tax rate applies to the gain on the transfer of virtual currency, determined as the positive difference between the sale price and the purchase price, including the direct costs related to the transaction, once they are equivalent in FIAT. Gains below the level of RON 200/transaction shall not be taxed to the extent that the total gains in a tax year do not exceed RON 600.

“Failure to pay the tax results, in principle, only in the taxpayer’s tax liability but if the taxpayer evades the tax obligations related to cryptocurrency transactions, criminal liability may also arise. Law 241/2005 on preventing and combating tax evasion criminalises the concealment of taxable income and the failure to record income in accounting documents, when there is an obligation to keep accounts, even in the case of virtual currency transactions. The increasingly impressive size of the cryptocurrency market has led both to the desire and the need for authorities to find ways to control and benefit from these transactions, so the public is now faced with more and more moral and legal dilemmas arising from this new reality”, concludes Lawyer Cristian Roman.

[1] https://static.anaf.ro/static/3/Anaf/20220629164014_comcripto.pdf