The court of the Central District of Israel ruled in favor of the tax authority of the country, recognizing a Bitcoin as a financial asset, and not currency. Accordingly, profits from its sale in Israel should be subject to capital gains tax.

This is a case of the DAV blockchain startup, whose founder Noam Copel bought bitcoins in 2011 and sold them in 2013 with a profit of approximately 8.27 million shekels (about $ 2.29 million). Kopel does not agree that his profits should be subject to capital gains tax.

“Bitcoin should be classified as a foreign currency, and its profits should be treated as a difference in rates received by an individual who does not operate, and therefore should not be taxed,” he said.

However, the Israeli tax authority did not agree with this, since Bitcoin is not a currency by definition of the central bank; accordingly, it cannot be foreign currency, as was suggested. Instead, the agency claims that the cryptocurrency falls under the definition of an asset, so the profits from its sale are subject to capital gains tax. Recall officially the status of Bitcoin in the country is still undefined.

The court recalled the position of the tax authority that the definition of “currency” should be the definition of the country’s central bank. Under the current law, it does not apply to cryptocurrencies. The agency confirmed that bitcoin is not a currency in both accounting and economic aspects.

“He is very volatile, any investments associated with him are high-risk, its use is strictly limited, mainly by illegal entities, and it is not used as a standard of value,” says the Israeli tax service.

According to Koppel, the fact that Bitcoin is used as a payment method and for valuation means that it should be considered a currency.

After listening to the arguments of the parties, Judge Shmuel Bornstein rejected Kopel’s appeal because he “could not prove that Bitcoin meets the definition of a currency or that it represents a real alternative to coins and banknotes in any country,” and decided that since Bitcoin is an asset rather than currency, this operation is taxed. As a result, the decision of the court obliges Kopel to pay tax in the amount of about 3 million shekels.

According to the managing partner of the Israeli law firm Bracha & Co and the head of the tax department Itay Bracha, the decision can be considered a signal to those who have not yet reported on profits associated with cryptocurrency.

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