A court in the Russian region of Rostov has recognized P2P (peer-to-peer) transactions for the purchase and sale of cryptocurrency as constituting business activity that should be taxed accordingly.
A crypto trader has been fined as a result of the ruling, which may have implications for many ordinary Russians who prefer this method of exchanging crypto and fiat amid limited options to trade legally.
Court finds peer-to-to peer crypto transactions taxable
The Arbitration Court of the Rostov Oblast in Russia has concluded that a Russian citizen who traded cryptocurrency on a peer-to-peer basis was actually doing business, local crypto media unveiled, citing court documents.
The man involved in the case, Dmitry Nikityuk, has been registered as an individual entrepreneur since 2020 and declared 800,000 rubles ($10,000) of income from that activity on his 2022 return, Forklog reported on Thursday.
However, the Federal Tax Service (FNS) checked his bank statements and found that a total of 143 million rubles ($1.8 million) passed through his accounts during the same period, 92.5 million of which it deemed taxable.
The tax authority alleged that the buying and selling of cryptocurrency was actually part of the entrepreneurial activities of the sole proprietor. It estimated he owes an additional 5.46 million rubles in taxes and fined him 273,000 rubles for his inaccurate reporting.
Nikityuk insisted he was trading the digital coins as a private individual and declared the profits as personal income. Unhappy with the FNS decision to reject his claim, he eventually took the matter to the judiciary.
Russian entrepreneur resells Tether bought in Turkey
The court established that the plaintiff had regularly purchased cryptocurrency through foreign accounts, including in Turkey, and sold it to Russian residents who credited the rubles they paid with to different bank accounts.
Third parties participated in these transactions, and more than 90 accounts were involved in the trade, the business news outlet RBC noted. Nikityuk was primarily reselling tether (USDT), the U.S. dollar-pegged stablecoin that fuels a lot of the global crypto trade.
The Arbitration court concluded that the scheme bears the signs of a “systematic profit-making” and that the profits should be taxed under applicable tax rules.
It also said that the involvement of other parties, the mass nature of the transactions, the short-term ownership of the assets, and the desire to generate income point to a business activity.
The judges rejected Nikityuk’s claim against the Russian tax authority, upholding its decision to charge him an additional amount of due tax and fine him for understating his income base.
Court ruling to have wider implications
Buying and selling cryptocurrency alone does not make a person an entrepreneur, if these transactions were carried for personal purposes, Andrey Tugarin, founder of the Russian law firm GMT Legal, told RBC Crypto.
Three conditions must be met simultaneously to recognize an activity as entrepreneurial – independence, risk and systematicity. The latter, the lawyer noted, is the key criterion. It also helps if the entrepreneur had the goal of making money, he added.
“If you have become an individual entrepreneur, then the tax office has the right to recognize all your transactions on personal accounts as entrepreneurial if they are systematic and aimed at making a profit,” said Ignat Likhunov, founder of the Cartesius legal agency, who commented the case for Forklog.
The decision of the arbitration court is now applicable not only to private traders, but to all participants in the crypto industry in general as well, including any exchange platforms, Likhunov emphasized. Tax arrears or illegal entrepreneurial activity can be detected in their operations, he is convinced.
