Bitcoin Legal in Italy
Unlike other European countries, Italy does not have a comprehensive legal framework for issuers and intermediaries of cryptoassets. As already mentioned, CONSOB`s proposal for the legal framework can be set by the proposal for an EU regulation on crypto asset markets (MiCA). This means that Italy could become a potential hub for crypto asset startups, as there are no specific regulations that could block or interfere with such a development. However, when exchanges deal with non-financial crypto assets, there is currently no legal framework in place in Italy.26 However, in its March 2019 working paper on ICOs, CONSOB gave some guidance and suggestions on how these types of exchanges should be regulated if no action was taken by the legislator. With regard to the powers of sanction, the Association of Credit Intermediaries and Credit Intermediaries may exclude or remove from the special part of the register any natural or legal person who infringes the reporting obligations if he does not fulfil one of the conditions for carrying out his activity, if he repeatedly infringes the obligation to report data if he is inactive for more than one year, unless there is a legitimate reason, or they cease their activity. Italy recognizes the potential of cryptocurrencies to promote illegal activities, and so the government is now spending more time creating a regulatory framework that makes it safer for investors and enthusiasts. It should be noted that the “new resident tax system” does not provide protection against the international automatic exchange of information (i.e.dem the so-called Common Reporting Standard (CRS) as well as FATCA with the United States). Although crypto assets are still rather unknown territory in terms of CRS and FATCA, states and financial institutions expect to take appropriate measures to increase the level of oversight of this phenomenon in order to combat the misuse of crypto assets in illegal transactions. 30-01-2015:- The Bank of Italy publishes two guidelines warning against the use of virtual currency. The European Banking Authority has also clarified its position that financial institutions should not buy or invest in virtual currency until a formal legal framework is in place. All this is already known and partly understood by the Italian tax authorities, who from 2016 were invited by several taxpayers (mainly individuals) to make decisions on the most appropriate tax treatment of income from cryptocurrencies.
On such occasions, the tax authorities have concluded that cryptocurrencies should be considered similar to foreign currencies (which goes beyond the findings of the first decision of the Court of Justice of the European Communities on this subject – Case C-264/14 `Hedqvist`, on the basis of which `it is common ground that the virtual currency `Bitcoin` has no other purpose than to be a means of payment and that it is accepted for that purpose by some operators). As a result, according to the tax authorities, the legal framework applicable to issuers depends on the crypto asset issued. If the issue concerns crypto assets considered as financial instruments (i.e. investment tokens and, in rare cases, utility tokens), Articles 94 et seq. of the Consolidated Finance Law apply. Yes, crypto exchanges are legal in Italy. Under Italian law, cryptocurrencies and foreign currencies are treated equally. The use, storage and exchange of cryptocurrencies is not prohibited on the best Italian crypto exchanges. According to the decree, the special section must be put into operation by 18 May 2022 with an acquired rights period of 60 days for operators already operating in Italy. From this date, any provider of cryptocurrency exchanges, crypto-trading, digital wallets and, in general, all services related to virtual currencies (“Providers”) must register in the special department in order to conduct business in Italy and, therefore, introduce ad hoc policies and procedures to ensure compliance with the new Italian legal framework. Any non-registration will result in administrative penalties and the exercise of these services will be illegal.
In 2017, the Italian government issued Legislative Decree No. 90. The decree gives the Ministry of Economy and Finance the power to issue official decrees on procedures and deadlines for cryptocurrency providers to comply with their legal obligations. The purpose of the decree is to prevent the use of the Italian financial system for money laundering and terrorist financing. In Italy, financial crime is a widespread problem, as most Italians use cash to pay their bills. In particular, cash-based systems can facilitate tax evasion and money laundering. As a result, Italian authorities have placed cryptocurrency providers such as Coinbase under the same regulations as those issued for traditional foreign exchange operators. As regards service providers separate from stock exchanges, there is currently no legal framework in Italy, nor has CONSOB presented a proposal for a Regulation in its working document on international commodity organisations. The Italian legal system does not include a general definition of cryptocurrencies (although, as we will analyze later, sectoral definitions have been introduced). Therefore, commentators have debated whether cryptocurrencies should be considered a currency or commodity from a legal point of view. This is not just a theoretical question, as it would have an immediate impact on a number of levels, including whether or not cryptocurrencies are an appropriate means of payment. After years of debate and uncertainty, a consensus now seems to have been reached in the sense that cryptocurrencies are subject to the same legal regime as currencies that are not legal tender in Italy, such as obsolete currencies such as the Italian lira, which has been replaced by the euro, and the currencies of another country.
Based on this theory, if a contractual payment is set in a cryptocurrency, while the creditor is not entitled to payment in a currency other than the contractually agreed currency, the debtor may also make the payment in the currency that is legal tender, at the exchange rate of the date on which the payment obligation becomes due. Although to date no case law has confirmed such a theory, it has been applied in an arbitral award (hyperlink)). Although most cryptocurrencies are considered financial instruments, each digital token must be analyzed on a case-by-case basis, as Italian law does not in itself generate a rule that cryptocurrencies are financial instruments. There are four types of cryptocurrency tokens under Italian law: (1) investment tokens, (2) security tokens, (3) payment tokens, and (4) utility tokens. In general, investment and security tokens fall under MiFID II because they have similar characteristics to normal securities. In addition, payment tokens are likely to be subject to MiFID II because they meet the definition of financial instruments as they are assets that can be traded. On the other hand, utility tokens are generally not regulated by MiFID II legislation as they cannot be traded on the financial markets. Therefore, they are unlikely to meet the legal definition of financial instruments and therefore fall outside the scope of MiFID II. In total, three types of cryptocurrencies are likely to fall under MiFID II regulation: Under Italian law, most cryptocurrencies are considered financial instruments. First, the Italian tax administration regulates cryptocurrencies as if they were financial instruments. In particular, Italy taxes cryptocurrencies in the same way as foreign currencies, as both are not legal tender in Italy. Since foreign currencies are still considered financial instruments, the Italian tax authorities tax cryptocurrencies as financial instruments.
In addition, the Italian Supreme Court has ruled that Bitcoin is correctly classified as a financial instrument under Italian law. Therefore, it is generally assumed that cryptocurrencies are financial instruments and therefore subject to MiFID II regulation in Italy. The legal treatment of cryptocurrencies is still an evolving field and, as such, is still subject to different approaches. While EU institutions try to regulate cryptocurrencies in some way, national authorities tend to apply existing principles when it comes to currencies or financial products. 02-09-2016:- Italy`s highest tax authority, Agenzia Delle Entrate, has published a new update on digital currencies. He noted that purchases and sales made via Bitcoin would be exempt from VAT. The document states: “Intermediate transactions in traditional currency carried out with virtual currencies of market participants are exempt from VAT because they are part of transactions related to banknotes and coins.” Italian courts disagree that cryptocurrencies should not be treated as legal tender. The other disagreement of the courts is the rules. Despite the legal disagreements, the Italian Supreme Court considers cryptocurrencies as financial instruments. As there is still no organic legal framework for cryptocurrencies in Italy, the Italian tax authorities are currently applying the existing income tax and reporting regulations that generally apply to foreign currencies (looking for a compromise between the different functions of cryptocurrencies). While this approach has drawn widespread criticism, it may have inadvertently opened the door to planning opportunities under the “new tax system for residents.” .