A legal row between a Blockchain startup and the state of Israel’s tax authority has led to a major ruling recognizing Bitcoin as an asset.
An Israeli central district court has just ruled in favor of its tax authority Monday, recognizing bitcoin as a financial asset and not a currency.
The court ruled that Bitcoin profits on its sale in Israel are therefore subject to capital gains tax.
Judge Shmuel Bornstein simultaneously rejected an appeal by the founder of a blockchain startup who argues that bitcoin should be considered a currency, so the proceeds from its sale should not be subject to taxation.
New.bitcoin.com quoted Israel’s Globes daily financial newspaper which reported on Tuesday:
“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. Bitcoin as an asset.”
According to reports cited by News.bitcoin.com, the case involves Noam Copel, founder of blockchain startup DAV. “We’re building a decentralized infrastructure to revolutionize the transportation industry on the blockchain,” the company’s website explains.
The platform quoted Globes that Copel bought BTC in 2011 and sold them in 2013 for a profit of approximately NIS 8.27 million (~$2.29 million). Asserting that his profits should not be subject to capital gains tax, he told the 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.”
The ruling took its stand from the decision of Israel’s central bank that:
“bitcoin is not a currency from both accounting and economic aspects, stating that “its valuation is extremely volatile, any related investments carry high risk, its use is severely limited and restricted mostly to unlawful entities, and it is not used as a benchmark for value.”
However, there are indications that the court’s ruling was merely based on existing law.
Bittax founder Gidi Bar Zakay, former Deputy Director of the Israel Tax Authority and currently director of the Israeli CPA Association, told news.bitcoin.com on Monday that the ruling was based on current law, elaborating:
“In my view, what will ultimately determine whether bitcoin is a currency is the reality test. As soon as its use becomes widespread, the legislature will have to rewrite the law in such a way as to accommodate this.”
Unless the case is taken to the Supreme Court, all cryptocurrency transactions in Israel will now be subject to a capital gains tax of 25%-30%.
The ruling could have unintended consequences on the digital currency community in Israel as it could discourage innovators and investors in the landscape choosing Israel as a base.