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A recent ruling by the Arbitration Court of the Rostov Region has declared peer-to-peer (P2P) cryptocurrency transactions as entrepreneurial activity, a decision that has ignited considerable debate among legal and financial experts. This landmark case involved an individual entrepreneur whose extensive crypto dealings were reclassified by tax authorities, leading to significant tax reassessments and penalties.
Key Takeaways from the Ruling
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The FTS argued that the systematic and large-scale nature of the entrepreneur's crypto transactions, involving 92 bank cards, third-party involvement, and foreign accounts, indicated entrepreneurial activity.
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Evidence included witness testimonies and the entrepreneur's own admission of buying cryptocurrency in Turkey and selling it in Russia via P2P.
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The court sided with the FTS, asserting that even without specific regulations, cryptocurrency is property subject to taxation, and systematic trading by an individual entrepreneur is considered business activity.
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The court clarified that combining simplified and general tax systems is impermissible, and the absence of a specific OKVED (Russian economic activity code) for crypto trading does not negate tax obligations.
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Consequently, the FTS levied an additional 5.46 million rubles in taxes under the simplified system and 273,000 rubles in fines.
Russian Court Classifies P2P Crypto as Entrepreneurship
The Arbitration Court of the Rostov Region has ruled that P2P cryptocurrency transactions constitute entrepreneurial activity. This decision stemmed from a case where an individual entrepreneur, operating under a simplified tax system, initially declared 800,000 rubles in income for 2022. However, the Federal Tax Service (FTS) uncovered 143 million rubles in total receipts to the entrepreneur's bank accounts for the same period. Following an FTS inquiry, the individual amended their declaration, reporting 92.4 million rubles from crypto sales and claiming a 92.6 million ruble property tax deduction, without providing supporting documentation.
Expert Opinions on the Verdict
Legal and financial experts largely agree with the court's decision, though some question the entrepreneur's defense strategy.
Ignat Likhunov, founder of Cartesius legal agency, highlighted that the court's decision aligns with the Russian Civil Code. He stated, "If you become an individual entrepreneur, all your personal account transactions can be recognized as entrepreneurial by the tax authorities if there is systematic activity and the goal of profit extraction, combined with the non-use of resold property for personal purposes."
Likhunov also noted that the court affirmed that crypto sales are taxed under general property sale rules, and entrepreneurs on the simplified tax system cannot claim personal income tax deductions.
Sergey Mendeleev, CEO of Exved, concurred with the court's legitimacy. He explained, "From the state's perspective, such activity is undoubtedly entrepreneurial. Is there regularity? Yes. Is there income generation? Absolutely. What you trade — crypto or fir cones — is a secondary matter. Moreover, it doesn't matter if you are an individual entrepreneur or not. The tax authorities can easily reassess even an ordinary individual."
Mendeleev suggested the defendant should have challenged the amount of the tax reassessment rather than the nature of the activity. He argued, "Okay, let it be entrepreneurship. Here are all my statements, I bought crypto for 990,000, sold for 1 million. My income is 10,000, tax that, not the turnover. In this part, the decision, of course, cannot be agreed with."
It is important to recall that a law on cryptocurrency taxation came into force in Russia in November 2024, recognizing cryptocurrency as property. The tax base is defined as the excess of the asset's value over its acquisition or mining costs. Individuals selling cryptocurrencies are subject to a 13-15% personal income tax, while legal entities face a 25% profit tax.
Sources
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