Denmark’s Tax Law Council has proposed a new mark-to-market taxation approach for cryptocurrency assets as it seeks to address taxation challenges in the rapidly evoving digital asset space.
According to a statement released on Wednesday, the council’s recommendations would subject crypto investors to taxes on unrealized gains or losses, meaning they could be taxed even if they haven’t sold their crypto assets.
The proposed tax model, which treats crypto as capital income, would levy taxes based on the annual changes in the value of crypto holdings. This differs from the current system, where taxes are applied only when assets are sold or exchanged.
The council explained that regulating the taxation of crypto has been difficult due to the decentralized nature of digital assets, which lack oversight from traditional financial institutions like governments or central banks. If adopted, the new rules would take effect no earlier than Jan. 1, 2026.
Denmark’s Minister of Taxation plans to introduce a legislative proposal in early 2025 that incorporates the council’s recommendations. The bill is also expected to mandate crypto service providers to report clients’ crypto transactions to ensure compliance with the new tax rules.
Mads Eberhardt, a senior crypto analyst at Steno Research, commented on X that the tax rate for unrealized capital gains could be as high as 42%. He noted that this would impact not only future crypto holdings but also assets acquired as far back as Bitcoin’s launch in January 2009. “The gloves are off. This is a war on crypto,” Eberhardt added, highlighting the implications for Denmark’s crypto investors.
In the U.S., the IRS requires brokers and exchanges to report certain cryptocurrency sales. Consensys, the developer behind the MetaMask wallet, criticized the draft form for its lack of clear instructions and overly broad definition of a broker, which could result in multiple parties reporting the same transaction.
The IRS said it plans to make public criminal tax-evasion cases involving cryptocurrency, which opens a new front in the agency’s burgeoning scrutiny of the industry.