Israeli Court Rules Bitcoin Is Not a Currency in Court Case Over Taxes on BTC Gains

The Central District Court in Lod accepted the Tax Authority’s interpretation and held that Bitcoin is an asset and not a currency therefore deeming the transaction in question as taxable. This judgement is significant as it results in the profits made by selling cryptocurrencies are liable to capital tax gains. Noam Copel, the founder of the blockchain start-up DAV, had bought BTC in 2011 and had sold them 2 years later, resulting in making a profit of $2.9 million based on today’s rates.

During the court case Copel argued that bitcoin should be regarded as a foreign currency and therefor the fluctuations in the rates should not be taxed. The Tax Authority argued that Bitcoin was not a currency and therefore could not be regarded as foreign currency. The Israel Tax Authority argued, putting forward the idea that currencies must have some physical manifestation under the country’s laws. According to them, Bitcoin is defined as an asset and therefore the profits made from its sale are liable to capital gain tax.

In the ruling, Judge Shmuel Bornstein accepted the Tax Authority’s position, which makes the appellant liable to tax. Judge Bornstein indicated that this ruling was “for now” and that the courts attitude may change. The entrepreneur must now pay tax on $830,000 of the profits he made.

Gidi Bar Zakay CPA, formerly deputy head of the Israel Tax Authority and a specialist in cryptocurrency taxation, said:

 “Judge Bornstein methodically reviewed the provisions of the law that deal with, among other things, the definition of a currency, and ruled that, given the way the law is currently formulated, Bitcoin cannot be considered a currency, and he therefore accepted the Tax Authority’s interpretation, as expressed in a 2018 circular.”

” In my view, what will ultimately determine whether Bitcoin is a currency is the reality test. As soon as its use becomes widespread, the legislature will have to rewrite the law in such a way as to accommodate this, and we shall all benefit from these technological and monetary developments and from the ability of Bitcoin and other cryptocurrencies to serve as efficient, trustworthy, and widely accepted means of payment. In fact, the way to that lies through the regulator. If the enforcement agencies feel comfortable with the coin and use blockchain analysis tools that make it possible to meet standards of money laundering prevention and tax avoidance prevention in a more reliable and efficient way than is the norm today, the road to it becoming a widespread means of payment will be open.”