Israeli Courts: Bitcoin Is a Taxable Financial Asset, Not a Currency

A central district court in Israel has reportedly ruled in favor of the nation’s tax collection department, which has categorized bitcoin (BTC) as a financial asset - but not a medium of exchange (MoE).

According to the court’s ruling, the Israeli tax department may impose and collect taxes on transactions involving bitcoin, the world’s most dominant cryptocurrency. The court’s decision on the matter was announced on Monday (May 20, 2019).

Bitcoin Is a Taxable Financial Asset

As confirmed by Israel’s central district court, bitcoin-related transactions are subject to a capital gains tax as the pseudonymous cryptocurrency is considered a financial asset by the country’s central bank.

Notably, the matter was brought before court Judge Shmuel Bornstein by the founder of a crypto startup that argued bitcoin should be treated as a currency, or medium of exchange. The entrepreneur said that transactions involving the cryptocurrency should not be taxed because it’s a currency, not a financial asset.

Bitcoin's Status Hasn't Yet Been Established

As noted by local news outlet Globes: 

The Central District Court in Lod accepted the tax authority’s interpretation, and held that bitcoin is an asset and not a currency, and that the transaction in question is therefore taxable.

Going on to mention that Israeli financial regulators have not yet established a comprehensive regulatory framework for cryptoassets, Judge Bornstein said that it was “hard to envisage a result whereby Bitcoin would be considered a currency for tax purposes in particular.”

According to Globes, the case involving bitcoin-related transactions could reach Israel’s Supreme Court.

Commenting on the status of Bitcoin, Itay Bracha, Managing Partner at Israel-based law firm Bracha & Co., remarked:

The ruling is a signal to all those who have yet to report cryptocurrency-related [capital gains] or based their actions on differing legal advice.

Building Decentralized Infrastructure for the Transportation Sector

Per the legal specialist, the recent ruling is “unequivocal” and that it is only a “judicial interpretation”, not a “new legalization.” Therefore, the current ruling on the status of bitcoin would only “apply retroactively.”

As noted by local sources, the latest BTC-related case involves Noam Copel, the founder of blockchain startup DAV. As stated on the crypto firm’s official website:

We’re building a decentralized infrastructure to revolutionize the transportation industry on the blockchain.

In 2011, Copel reportedly purchased BTC and sold it in 2013 for a profit of around $2.3 million. Arguing that his profits, or capital gains, were not taxable, the crypto entrepreneur stated (in court):

Bitcoin should be classified as a foreign currency, and that his profits should be seen as exchange rate differences received by an individual not in the course of a business, and therefore should not be taxed.

As explained, the Israeli courts ruled in favor of the nation’s central financial institution by categorizing Bitcoin as a financial asset - which is subject to taxes.