Time and Value Test: Facts vs. Misconceptions and Myths

The statement of the General Financial Directorate (GFŘ), published yesterday by the economic daily E15, contains several claims that we consider inaccurate and outdated. We would like to respond to these claims to clarify the current situation regarding crypto assets and the proposed time and value test. The GFŘ's statement is full of errors and myths, which is particularly paradoxical given the current situation, where EU rules on administrative cooperation in tax matters—specifically focusing on crypto assets—are being implemented into Czech law.

Časový a hodnotý test na kryptoměny

1. The Legal Nature of Crypto Assets

The GFŘ states that the legal nature of crypto assets is not sufficiently established in the Czech legal framework. 

This opinion does not reflect the current state of legislation. The Czech Republic was one of the first countries in Europe to define the legal status of crypto assets through the law on certain measures against money laundering and terrorist financing. Furthermore, with the introduction of the European MiCA (Markets in Crypto-Assets) regulation, the legal framework will be further strengthened and expanded starting next year. This clearly disproves the claim that there is insufficient legal regulation of crypto assets.

2. Classification of Crypto Assets as Movable Property

The GFŘ claims that crypto assets are considered movable property, which creates interpretative issues in the tax domain.

This description is at the very least inaccurate. Stablecoins are already classified as payment instruments (electronic money tokens), while financial crypto assets, such as tokenized stocks and bonds, meet the definition of financial instruments under European regulations (MiFID) and the pilot regime regulation. Therefore, these assets are not limited to the concept of movable property, as the GFŘ suggests.

Moreover, classifying some crypto assets as movable property does not prevent the introduction of the time test, which is already applied to other investment assets such as stocks and real estate. Stocks, although commonly perceived as financial instruments, are taxed as movable property when assessed under the time test. This approach demonstrates that classifying assets as movable property does not create obstacles to fair taxation based on the holding period. The proposed amendment introducing the time and value test for crypto assets simply aligns the rules with other investment instruments to which the time test already applies (stocks, real estate, etc.).

3. Tax Exemption and Its Implications

The GFŘ states that adopting the proposed tax exemption for crypto assets would lead to an illogical elimination of personal income taxation for service providers if they were paid in crypto assets.

This argument is entirely incorrect. The exemption of crypto assets through the time test does not apply to regular income from service provision. The tax system will continue to require taxation of income from services, regardless of whether they are paid in cash, cryptocurrencies, or other forms. The introduction of the time test simply aligns the rules for crypto assets with those for stocks and other investment instruments. The proposed annual limit of 40 million CZK is the same as that applied to stocks.

Furthermore, crypto assets are fully transparent, and thanks to blockchain technology, it is easy to verify how long they have been stored in a particular wallet. This allows the tax authorities to monitor crypto asset transactions much more easily and effectively than traditional assets.

4. Regulation of Crypto Assets and Their Oversight

The GFŘ mentions the near absence of a regulatory framework for crypto assets, which is again a completely false claim.

The Czech Republic has been regulating crypto assets and anti-money laundering measures for many years, and with the adoption of the MiCA regulation, this framework will be further tightened. Additional regulations affecting the crypto asset sector include the TFR and DAC8 (see more below).

5. Concerns About Tax Evasion and Money Laundering

The GFŘ has expressed concerns that the introduction of the time and value test could create a "buffer" for tax evasion or the legalization of untaxed income.

We consider this argument unfounded. Crypto assets are entirely transparent, and unlike cash, their history is always publicly accessible. Additionally, unlike stocks, they do not require the cooperation of third parties (such as banks or brokers). Anyone—including the tax office—can independently verify online whether the conditions of the time test have been met.

Moreover, MiCA and TFR implement the so-called "travel rule," which requires the tracking of personal data for cryptocurrency transactions exceeding certain limits, providing additional safeguards against misuse. Additionally, DAC8 introduces an obligation for crypto asset service providers to report aggregated information about their users and transactions annually, precisely to prevent tax evasion.

Even the Financial Analytical Office (FAÚ) does not share these concerns, as it has no objections to the proposed legislation (see the resolution from October 8, 2024, linked below).

Links to Relevant Regulations: