The Danish Customs and Tax Administration has recently published Tax Council Binding Answer No. SKM2023.226.SR, providing clarity on the timing of taxation for digital currency investments using the first in, first out (FIFO) principle. In this particular case, a taxpayer had invested in digital tokens and sought clarification on the taxation of these investments.
The tax council provided the following confirmations:
As the taxpayer acquired the digital tokens for speculative purposes, any gains and losses arising from these investments must be included in the calculation of taxable income.
When it comes to the acquisition of rewards, they should be recognized as income at the time of receiving the award. This is because the taxation of speculative activities also encompasses returns in the form of rewards.
The exchange of one type of digital currency for another is not subject to income tax.
Due to the taxpayer’s substantial investment in a single cryptocurrency, making it difficult to differentiate between individual cryptocurrencies, it is necessary to apply the FIFO principle when calculating partial disposals. This principle ensures that the first acquired digital currency is considered the first one to be disposed of when determining taxable gains or losses.