Country-specific updates: Italy

Italian Tax Authority, Ruling no. 515 of October 17, 2022

The impossibility in identifying the existence of a "personalised" service provided by a cryptocurrency miner towards a specific beneficiary results in cryptocurrency mining activities being treated as outside the scope of VAT, as it is characterised by the absence of a link of reciprocal obligations.

DLA Piper comment: The Italian Tax Authority analysed the tax treatment applicable - for direct and indirect tax purposes - to cryptocurrency mining activity. Mining is defined as the process by which virtual currency transactions are verified and added to the registry (ledger) on the blockchain (transaction registration). The miner - in case of successful conclusion of the assigned transaction - may be entitled to (i) a mining reward, paid through cryptocurrencies or (ii) a protocol transaction fee, which is a percentage of the value of the transaction being processed, and which is paid from that transaction. In this specific case, the system under analysis did not allow to identify a recipient or a group of recipients.

As noted by the OECD in "Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues" dated 12 October 2020, almost all countries regard transactions related to virtual currencies as either exempt or excluded from the scope of VAT.

Also, in the light of OECD guidelines ("Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues" dated 12 October 2020), according to the Italian Tax Authority (see also, Ruling no. 508 of 12 October 2022) the absence of a mutual obligations’ link for the benefit of a specific recipient implies that mining remuneration has to be considered as out of scope. Therefore, a miner does not have to collect tax on cryptocurrencies received (automatically) from the network for the mining activity they rendered. Accordingly, no input VAT deduction is allowed to the miner.

For direct tax purposes, the Italian Tax Authority clarifies that such remuneration is included in the taxable base of the fiscal year where the services are performed, pursuant to Article 109 paragraph 2 of the Italian Tax Code (ITC).

Italian Tax Authority, Ruling no. 507 of October 12, 2022

The tax legal framework applicable to vouchers should not apply to utility tokens, whose nature changes after their issuance to become a virtual currency or an investment instrument capable of being traded on a secondary market in exchange for a profit (so-called hybrid tokens).

DLA Piper comment: The issue was raised by a company whose business consists in protecting music copyrights, using blockchain authentication. In order to collect the necessary financial endowment to complete its technological infrastructure and cover its operating expenses, the company intends to follow up on an Initial Coin Offer (so-called ICO) through the issuance of utility tokens that will entitle the holder to deposit its music at a discounted price.

As already clarified by the Italian Tax Authority (Ruling No. 14 of 28 September 2018 and No. 110 of 20 April 2020), the issuance of utility tokens in ICOs constitutes a type of financing, used by start-ups or individuals who intend to carry out a specific project, made possible through blockchain technology. In addition, such utility tokens - once purchased - entitle the holder to benefit from a discount on services provided by the Company.

According to the Italian Tax Authority, given the dual function of such utility tokens, (i) initially as financing instruments and (ii) subsequently as a method of payment for discounted services, the VAT treatment provided for vouchers is not applicable to such instruments.