France is considering a significant shift in its taxation policy by proposing a tax on unrealized capital gains from digital assets, including cryptocurrencies like Bitcoin. This move aims to address wealth held in non-productive assets but has raised concerns among investors and financial experts.

The French Senate is debating the introduction of an “unproductive wealth tax,” targeting assets that do not generate income, such as dormant real estate, luxury goods, and cryptocurrencies. Unlike the current system, where taxes are levied upon the sale of assets (realized gains), this proposal seeks to tax the increase in value of these assets even if they remain unsold (unrealized gains).

As of now, France taxes cryptocurrency gains when they are converted into fiat currencies like the euro. Occasional investors are subject to a flat tax rate of 30% on realized gains, which includes both income tax and social security contributions. Professional traders, depending on their activity level, may be taxed under the non-commercial profits (BNC) regime, with rates varying based on total income. 

The proposal to tax unrealized gains represents a departure from traditional tax principles, where taxes are typically imposed only upon the realization of gains. This approach could compel investors to pay taxes on paper profits without having liquidated the assets to generate cash flow, potentially leading to financial strain.

Critics argue that such a tax could discourage investment in digital assets and other non-productive wealth, prompting investors to relocate their holdings to more tax-friendly jurisdictions. Additionally, the administrative burden of assessing and reporting the market value of assets annually could be substantial.

The proposed tax aligns with France’s broader strategy to address wealth inequality and ensure that all assets contribute fairly to the tax system. However, it raises questions about the valuation of volatile assets like cryptocurrencies and the potential for double taxation if both unrealized and realized gains are taxed.

Moreover, implementing such a tax would require robust mechanisms to accurately assess the value of diverse assets, including those not frequently traded or lacking transparent pricing.

Information for this briefing was found via Watcher.Guru, Coinpedia, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.