Russian Court Rulings Classify P2P Cryptocurrency Transactions as Entrepreneurial Activity: Expert Insights

The Arbitration Court of the Rostov Region has ruled that P2P transactions involving the buying and selling of cryptocurrencies fall under entrepreneurial activity, as reported by lawyers from the Nextons firm.

The defendant has been a sole proprietor operating under a simplified taxation system since 2020. In his 2022 tax declaration, he reported an income of 800,000 rubles. However, the Federal Tax Service (FTS) sought information from banks and determined that the plaintiff’s accounts received a total of 143 million rubles in 2022.

Following a meeting with tax officials, the individual amended his declaration to report an income of 92.4 million rubles from cryptocurrency sales and claimed a property tax deduction of 92.6 million rubles but submitted no supporting documents.

The tax authority concluded that by engaging in the buying and selling of cryptocurrencies, the sole proprietor was effectively conducting business activities, and thus all his earnings were subject to taxation under the simplified tax system.

Among the claims raised were the frequency and scale of the transactions—92 bank cards were used, third parties were involved, and foreign accounts were utilized. Testimonies from witnesses and the entrepreneur’s own statements were presented as evidence, wherein he described a scheme involving purchasing cryptocurrency in Turkey and selling it in Russia via P2P.

In his defense, the individual argued that such operations do not necessitate registration as a sole proprietor and that income from selling digital currencies does not need to be included in the simplified tax scheme. He also highlighted the lack of a specific All-Russian Classifier of Economic Activities (OKVED) code for trading these assets.

The court sided with the tax authorities. It ruled that, even without specific regulations, cryptocurrencies are considered property, and transactions involving them are subject to tax, asserting that systematic trading of digital assets while holding sole proprietor status qualifies as entrepreneurial activity.

The defendant was informed that it is not possible to combine simplified and general tax systems, and the absence of a specific OKVED code does not exempt him from obligations to the FTS.

As a result, the tax authority recalculated the taxes owed by the individual at 5.46 million rubles under the simplified tax system, along with penalties amounting to 273,000 rubles.

«If you have registered as a sole proprietor, the tax authorities can classify all your transactions under personal accounts as entrepreneurial, given the regularity and intent to make a profit along with the absence of personal use of the resold assets,» the lawyer noted.

According to Likhunov, the court affirmed that in Russia, cryptocurrency sales are taxed according to the rules governing the sale of other types of property. Additionally, an entrepreneur under the simplified tax system cannot claim deductions for personal income tax (PIT).

«This court ruling, like our legislation overall (Civil and Tax Codes), is applicable to any peer-to-peer trader, exchanger, or cryptocurrency exchange. Their activities can formally be deemed to incur tax liabilities or illegal entrepreneurial endeavors. However, prosecution of average cryptocurrency users, as observed here, is practically nonexistent; these are isolated cases,» said the lawyer.

Exved CEO Sergey Mendeleev also concurred with the legitimacy of the court’s decision.

«From the government’s perspective, such activities are undoubtedly entrepreneurial. Is there regularity? Yes. Is there profit being generated? Definitely. Whether you are trading cryptocurrency or pine cones is a secondary issue. Furthermore, it doesn’t matter if you are a sole proprietor or not. The tax authority can easily reassess taxes on an ordinary individual as well,» he explained.

The expert believes that the defendant should have contested not the essence of the accusation but the amount of the tax reassessment.

«Okay, let’s accept that it’s entrepreneurship. Here are all my statements: I bought cryptocurrencies for 990,000 and sold them for 1 million. My profit is 10,000, and that should be the basis for taxation, not the total turnover. In that respect, I cannot agree with the decision,» Mendeleev concluded.

It is worth noting that in November 2024, legislation regarding cryptocurrency taxation came into effect in Russia. Here, cryptocurrencies are recognized as property, and the tax base is defined as the excess of the asset’s value over the costs of its purchase or mining.

Individuals selling cryptocurrency are obligated to pay PIT at rates of 13-15%, while corporations are subject to a 25% profit tax.