Russian Court Rules P2P Crypto Transactions Taxable Business Activity

The Arbitration Court of the Rostov Oblast in Russia has ruled that peer-to-peer (P2P) cryptocurrency transactions constitute business activities that should be taxed accordingly. This decision stems from a case involving Dmitry Nikityuk, who has been registered as an individual entrepreneur since 2020 and declared 800,000 rubles ($10,000) of income from his entrepreneurial activities on his 2022 tax return.

The Federal Tax Service (FNS) conducted an audit of Nikityuk's bank statements and discovered that a total of 143 million rubles ($1.8 million) had passed through his accounts during the same period, with 92.5 million rubles deemed taxable. The tax authority alleged that Nikityuk's buying and selling of cryptocurrency were part of his entrepreneurial activities, estimating that he owed an additional 5.46 million rubles in taxes and fined him 273,000 rubles for inaccurate reporting.

Nikityuk argued that he was trading cryptocurrency as a private individual and declared the profits as personal income. Dissatisfied with the FNS's decision, he took the matter to court. The court found that Nikityuk had regularly purchased cryptocurrency through foreign accounts, including in Turkey, and sold it to Russian residents, with the rubles paid credited to different bank accounts. The court noted that third parties participated in these transactions, involving more than 90 accounts, primarily reselling tether (USDT), a U.S. dollar-pegged stablecoin.

The court concluded that the scheme bore the signs of "systematic profit-making" and that the profits should be taxed under applicable tax rules. The involvement of other parties, the mass nature of the transactions, the short-term ownership of the assets, and the desire to generate income pointed 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.

This ruling has broader implications for the cryptocurrency industry. Buying and selling cryptocurrency alone does not make a person an entrepreneur if these transactions were carried out for personal purposes. However, three conditions must be met simultaneously to recognize an activity as entrepreneurial: independence, risk, and systematicity. The latter is the key criterion, and it also helps if the entrepreneur had the goal of making money.

If an individual has become an entrepreneur, the tax office has the right to recognize all their transactions on personal accounts as entrepreneurial if they are systematic and aimed at making a profit. This decision is now applicable not only to private traders but to all participants in the crypto industry, including any exchange platforms. Tax arrears or illegal entrepreneurial activity can be detected in their operations, according to legal experts.