Is the Income Tax Act really telling us that crypto for crypto exchanges will no longer be taxed?

Is the Income Tax Act really telling us that crypto for crypto exchanges will no longer be taxed? The recently enacted amendment to the Income Tax Act has undoubtedly brought generational changes not only to the taxation of certain crypto assets (beware, not all), but has relatively significantly stirred the waters of tax and regulatory conditions in the capital market. The changes adopted are beneficial for Slovakia not only from a marketing perspective. I think we all subjectively feel that taxing some crypto assets at a lower rate may just paradoxically increase overall tax revenues. However, the amendment has a number of technical and principled flaws (for example, apart from cryptos, we now quite often face challenges in the taxation of unit trusts). We write about these in turn on our Highgate Law & Tax, Highgate Accounting and Crypto Tax & Law profiles. While the drafters of the amendment probably had the “original intention” not to tax such exchanges at all, that is not reflected in the relevant standard-setting. Such a subjective purpose of the amendment is clearly not consistent with either a systematic or a grammatical interpretation of the Consolidated Income Tax Act. The latter still say that the exchange of a virtual currency for another, even if it is not a stablecoin, is still taxable. I do not consider this inconsistency to be a mistake on the part of the authors of the amendment. It is not their job, for example, to be able to recognise technically that the ‘sale of virtual currency’ is not a provision determining the taxability of some income. After all, that is what the entire parliamentary legislative infrastructure is for… This situation just confirms that writing laws “is not fun”. The prescriptive ambition of the Constitution of the Slovak Republic in Article 1: “Slovakia is …. a state governed by the rule of law” (in which the requirement for unambiguity of laws is materialized) suffers in this way. And the more technically imperfect laws there are, the greater the unpredictability of state action, for example in tax audits, and the more correct will be the statement “Slovakia is not a state governed by the rule of law”. Read more about the topic of (but rather technical) crypto-for-crypto exchange here in the next newsletter. Alternatively, feel free to write to me if you are interested in the details of the amendment.