The Israel Tax Authority will not use the FIFO method in taxing cryptocurrency earnings, effectively reducing taxes on digital assets by 50%.
The deputy director-general of the Israel Tax Authority (ISA) Roland Am-Shalem has announced he would not insist on the FIFO (first in, first out) method of taxing cryptocurrency earnings, which could reduce taxes on digital currencies by 50%.
In a statement sent to Cryptovest, Jeremy Dahan, co-founder of Hello Group Software, welcomed the news describing the move as “Another step in advancing crypto regulation in Israel.”
He quoted Am-Shalem as saying, “We will not insist on calculating FIFO in the taxation of crypto.”
Am-Shalem was asked whether the tax can be reported in a non-FIFO method, assuming that the cryptocurrencies can be identified. He replied: “Yes, we will not insist on FIFO, subject to the fact that you can identify the currencies and be consistent with yourself.”
Moreover, Am-Shalem clarified that the exact tax calculation, which relates to the profit explicitly accrued for each cryptocurrency, is acceptable to the Tax Authority.
According to Dahan, the announcement is good news for investors in cryptocurrencies emerging from Israel—a reduced tax payment on profits. To date, most tax consultants have viewed Bitcoin and other digital currencies as indistinguishable currencies, so the tax calculation was based on the FIFO model—meaning that the coin sold is the first currency to be bought.
He added, “The significance of the announcement is that the assessments are much lower than in the FIFO method, so even those who submitted reports according to this method will be able to submit revised reports that may reduce the assessment.”
“The declaration has an impact not only on Israel but also marks a milestone for the way the tax authorities look at the crypto industry. Such a step would save tens of millions of dollars on the one hand and, on the other hand, increase the profit of hundreds of millions of dollars in the country.”
He explained the new technology allows for extracting information from a blockchain directly. Thus, you can track the date of purchase of each currency specifically and make the exact tax calculation according to when each currency was bought and sold. In this way, the exact profit can be calculated rather than using profit estimation methods such as FIFO.
Only recently, the ISA implemented blockchain in its messaging platform in a bid to bring more online protection by expanding distributed ledger technology (DLT) across the agency internal communication channel.