Crypto Currencies in Real Estate

The human capacity for innovation has few limits. Throughout history, the basis of economic transactions has changed significantly.

If, at first, our ancestors exchanged goods directly, establishing relative values ​​on a case-by-case basis, we have evolved to a more sophisticated system based on currency.

Initially, this currency had an intrinsic value. The currency had the value associated with the materials incorporated into it (gold, silver, etc.). Subsequently, the coin was no longer minted in noble materials, but its value was directly related to a precious material, gold. But even this relationship disappeared when the United States of America abandoned the “gold standard”, that is, the currency and its value, no longer had a direct relationship with the value of the gold held by the issuing entity. In this new paradigm, in which the value of the currency is no longer directly correlated with the precious metal, it has taken on the form of a real contract. Its value, as it is not related to any “real” reference, is that which is attributed by the set of economic agents at a given moment.

With the evolution of technology, the currency took another “evolutionary” leap and dematerialized, starting to exist only in the virtual world. In this environment of total dematerialization, the “currency”, now virtual, assumed in its fullness the nature of a mere contract. However, and because real life tends to develop at a faster rate than the speed of reaction and adaptation of legal systems, virtual currency has spread and has been introduced into the commonly accepted payment system.

Thus, we are currently witnessing an intention on the part of economic agents to use virtual currency as a means of payment for their consumption and investments, including those of a real estate nature.

This reality raises several questions, whether of a civil or fiscal nature.

In matters of a civil nature, both the value to be attributed to the “virtual currency” and the nature of the transaction to be carried out are posed.

Regarding the first question, and since virtual currencies are not “legal tender” (ie they are not legally accepted means of payment), they will have the value that the parties agree to assign to them. In fact, in the absence of an official quotation, the parties will have to, by mutual agreement, match the value of the virtual currency to the value of the real estate to be acquired.

Regarding the nature of the transaction, some have the understanding that we are dealing with an exchange, that is, the mere exchange of one good for another, albeit of a different nature.

Thus, and as far as we are aware, when the purchaser of a property wants to pay the price directly in virtual currency, some Notaries have accepted the realization of deeds of exchange to title the business. In other words, they consider it not to be a purchase and sale (because the consideration is not paid in legal tender), but an exchange of goods.

Another possibility involves the conversion, prior to the granting of the deed, of the virtual currency into Euros (as it is the legal tender in Portugal), in which case the price is paid to the seller in Euros. In this scenario, we are dealing with a real purchase and sale, without any specialization (other than the conversion of virtual currency into euros).

A second line of analysis concerns the tax effects, namely in terms of IMT and Stamp Duty.

In the case of the early conversion of the currency into euros and subsequent use of euros to pay the price, we are, as mentioned, before a purchase and sale, so the taxes must be settled assuming that nature.

As for the exchange, doubts may arise.

Indeed, the IMT Code provides that, in the case of exchanges, the taxable amount corresponds to the difference between the values ​​attributed to the properties or the difference between taxable asset values, whichever is greater. Likewise, it is foreseen that the obligation to pay the tax falls on the party that receives the asset of greater value.

This means that if the assets (real estate) object of the transaction has the same taxable equity value and the parties attribute the same value to them, there is no obligation to pay tax.

Thus, it has been held by some that the aforementioned rule is applicable in deeds of exchange in which real estate is exchanged for virtual currency.

We cannot agree with this line of reasoning.

According to rules 4, 5 and 6 of paragraph 4 of article 12 of the IMT Code:

4. In exchanges of real estate, the declared difference in values ​​is taken as the basis for settlement, when greater than the difference between the taxable equity values;
5. In transfers by means of donation of goods in payment, the tax is calculated on its taxable equity value, or on the amount of the debt that is paid with the goods transferred, whichever is higher;
6. When the transfer is effected by means of waiver or assignment, the tax is calculated on the taxable asset value of the respective immovable property, or is levied on the value contained in the act or contract, whichever is higher;

From the analysis of rule 4, it appears that the exchange envisaged is that of immovable property. In other words, the wording of the Law shows that this specific rule is intended to apply to situations in which immovable property is exchanged, that is, an immovable property for another immovable property.

And, from the analysis of rules 5 and 6, it appears that the spirit of the Law is that when the transfer is carried out by means other than purchase and sale, the taxable value corresponds to the value declared by the parties or the taxable equity value, whichever is greater.

Thus, in situations in which the acquisition of the property is carried out by exchanging the property for virtual currency, the taxable value for the purposes of IMT appears to be the taxable equity value or the value declared by the Parties, applying the general rule laid down for the purchase and sales. In fact, otherwise, these transactions of exchange of real estate for virtual currency would always be exempt to the extent that the value of the virtual currency will correspond to the value declared by the parties for the two goods, and there is no taxable equity value of the virtual currency.

In short, even when payment for the property is made directly through the delivery of virtual currency (situation of, alleged, exchange), we believe that property taxes (IMT and Stamp Duty) should be calculated (and paid) applying up the rules laid down for buying and selling.

Martínez-Echevarría & Ferreira has professionals with the technical capacity to help you find the solution that best suits your personal, professional or business situation so that you can properly structure, economically, regulatory and fiscally, your activity.