Defense during a crypto tax audit
In the event of a crypto tax audit, defense must be both legally rigorous and technically precise regarding transaction analysis. ORWL_ leverages its dual expertise to represent corporations and individuals before tax authorities and courts.
For several years, tax authorities have been intensifying audits related to crypto-assets. Whether for individual investors or industry players, these audits can take the form of a personal tax situation examination (ESFP), a crypto accounting audit, or even a tax raid authorized by a judicial order.
These procedures expose taxpayers to heavy assessments: back taxes, late interest, penalties, and even criminal sanctions. In this context, the support of a professional during a crypto tax audit is essential to defend your rights and mitigate risks.
What is a crypto tax audit?
A crypto tax audit is a procedure through which the tax administration verifies the compliance of a taxpayer’s declarations—individual or corporate—regarding digital asset operations. This procedure, essential in a self-assessment tax system, follows strictly codified rules designed to protect taxpayer rights while allowing the administration to fulfill its oversight mission. Crypto tax audits present specific challenges, particularly regarding the legal characterization of operations, the identification of applicable tax regimes, and the complexity of tracing flows.
Crypto tax audits for individuals
For individuals, audits primarily focus on:
- Reporting of capital gains from the sale of cryptocurrencies or tokens, taxable under the Flat Tax (PFU) or, by election, the progressive income tax scale (notably when resulting from debit card payments linked to undisclosed foreign accounts);
- The mandatory disclosure of digital asset accounts held on foreign platforms (Kraken, Coinbase, etc.);
- Income derived from various crypto operations: staking, lending, mining, airdrops, play-to-earn, NFT creation and sales, etc.
Crypto Tax Audits for Corporations
For companies, verifications specifically concern:
- VAT liability for various operations (crypto-asset services, marketplaces with opaque or transparent intermediation, staking or mining operations, etc.), the exercise of input tax recovery, and liability for payroll taxes;
- Corporate Income Tax (CIT) treatment of various crypto-asset inflows (proceeds from token/NFT issuances, crypto payments, etc.) or financial operations (market making, collateralized loans, lending, staking, mining, etc.);
- Permanent Establishment (PE) risks in France for foreign companies operating in the national market without local tax registration (which may trigger search and seizure procedures/tax raids).
Why hire a tax attorney for a crypto tax audit?
A crypto tax audit requires a structured and controlled approach. The intervention of a specialized lawyer allows you to:
- Define a strategy following a preliminary audit: Assessing risks, choosing between voluntary disclosure, targeted discussion, or selective document communication to maintain control over the procedure and avoid self-incrimination.
- Provide clear technical education: Translating the technical mechanisms of crypto-assets (staking, NFTs, DAOs) into language understandable to auditors to ensure the recognition of correct legal characterizations.
- Verify procedural accuracy: Monitoring the lawfulness of procedural acts and the accuracy of the calculations used for assessments (which often contain approximations and errors).
- Mediate exchanges: Depersonalizing the discussion to favor a pragmatic approach with the administration.
- Anticipate collection and litigation: Preparing an effective defense during the audit for potential reassessments and, if necessary, before tax courts.
Our methodology in crypto tax audits
Each crypto tax audit requires a methodical approach tailored to the taxpayer’s profile and risks. Our intervention follows a structured path:
- Preliminary Audit: Reconstituting on-chain flows, analyzing reporting obligations (capital gains, foreign accounts), and identifying assessment risks.
- Defense Strategy: Defining the strategy during the audit.
- Operational Support: Assistance during meetings and drafting written responses to administrative requests.
- Pre-litigation: Reviewing the notice of assessment (proposition de rectification) for procedural regularity and merit, and managing pre-litigation appeals.
- Crypto Tax Litigation: Preparing financial and legal arguments and representing clients before administrative and judicial courts.
This method is backed by over eight years of concrete experience in crypto taxation:
- Obtained numerous tax rulings reflecting the administration’s position on diverse topics (token-based remuneration, VAT and CIT for token/NFT issuances, marketplace intermediation status, professional vs. non-professional trading status, etc.);
- Assistance in diverse crypto tax audits (challenging tax residency, rectifying undisclosed capital gains involving millions of euros, VAT and CIT reassessments for NFT projects, taxation of undisclosed content creator activities, etc.).