what are the tax implications in France?

The new Terra blockchain is trying to compensate its users with an “airdrop” campaign. What is this concept? What are the tax implications?

On Saturday, the new Terra blockchain was born, after the recovery plan to save the Terra ecosystem was accepted by the community. The founder of Terra, Do Kwon had planned in particular to compensate his users, by carrying out an “airdrop” campaign.

An airdrop is a free distribution of a cryptocurrency (token) made by the creators of this same cryptocurrency. For a project, this type of method allows it to gain visibility or, in the case of Terra, to regain a certain lost legitimacy.

Depending on each airdrop project, the company behind can choose to distribute them to everyone or to a list of people depending on certain conditions, such as already owning this cryptocurrency, being on the platform of a project or to have some activity in decentralized finance (DeFi). The examples vary depending on each airdrop project.

For example, as part of the Terra blockchain, the reception of airdrops is done according to a precise distribution plan established by its founder Do Kwon. To receive these airdrops (in this case the new luna cryptocurrency), users had to have the stablecoin usd (UST) or the luna cryptocurrency either on their wallet (digital cryptocurrency wallet) or on a trading platform. cryptocurrencies (like Binance). Some platforms have already carried out the distribution of airdrops, the FTX platform having to carry out this operation on Tuesday.

“You have to be careful what you get”

Going back to the airdrop system, the cryptocurrencies are sent directly to a user’s wallet. He can receive these tokens when he had heard of an airdrop campaign, but also without having been aware of such a campaign, hence the fact of remaining very vigilant.

“You have to be careful about what you receive, and in particular find out before opening the airdrop. Some airdrops received can be worth thousands of dollars, you have to be careful when you want to transfer them to stablecoins or another cryptocurrency, if it is a scam and the user clicks on it, all their tokens are sent to the malicious person”, explains to BFM Crypto Marouane Essaïdi, digital asset manager at TheDiggers, a community that seeks to make financial education on cryptocurrencies.

For example, today, PeckShield, a specialist in blockchain security, posted an alert about the luna airdrop on Twitter, so as to avoid scams.

In general, airdrops allow users to integrate more easily into the world of cryptocurrencies.

“People were able to receive substantial amounts as soon as they arrived on the market, depending on their activity on certain platforms. For example, following their activities on the OpenSea platform, they were able to receive amounts of around 1,000 to 50,000 dollars”, adds Marouane Essaïdi.

As the new Terra blockchain has launched its airdrop campaign, what are the tax consequences for the French people who benefit from it?

The airdrop taken in the calculation of the capital gain

The classic situation is that an occasional investor, who is under the 30% flat tax regime, will receive airdrops. He will have a free acquisition, so there will be no increase in the acquisition price, nor taxation of the acquisition gain. However, two scenarios are available to him: once the airdrop has been received, either the user converts them into another digital asset (stablecoin type, mainly USDT or USDC) and reuses them for new investments.

Either he decides to exchange them for the euro and when the tokens are resold for the euro, the capital gain relating to this operation will then be equal to the sale price.

For example, for an occasional investor who had received an airdrop of 10,000 units worth, for example, 10,000 euros, on the resale of the tokens immediately, the capital gain is equal to the sale price – acquisition value (equal to 0 if done immediately). In this case = 10,000 euros.

In the event of a subsequent sale, the capital gain realized following the sale of the tokens resulting from the airdrop and other tokens, would be equal to:

The sale price (10,000 euros) – (the initial investment (1,000 euros base) x the sale price (10,000 euros)) / the total value of the portfolio which is made up of the tokens from the airdrop and the other tokens of the wallet (for example, 50,000 euros) = 9,800 euros.

“In any case, we find this airdrop when an individual declares these transactions relating to cryptocurrencies. If a person receives a lot of airdrop while being an occasional investment, he will have a large amount of sale price and therefore a significant taxable capital gain: the airdrop will be taken into account in the calculation of this capital gain. Indeed, even if the airdrop is free and not taxed, this does not prevent you from having to declare the capital gains afterwards”, explains to BFM Crypto Nicolas Verger, lawyers at Revo Avocats.

In addition, there is a specific scenario where people benefit from airdrop following the provision of services for the benefit of a crypto company or a project, which sends airdrops in return. Here, there is a risk of taxation at the time of allocation.

This law firm has notably dealt with cases of investors having benefited from airdrop because of their quality as service providers. “This situation entails, in our opinion, a taxation of the acquisition gain at the time of allocation in the tax category of the income from the said services (salaries, BIC or BNC, which can go to an overall taxation of up to around 60 % of gain on acquisition).

Moreover, in the midst of a bull run in cryptocurrencies, i.e. when cryptocurrencies are experiencing a strong period of growth, some may see their price be multiplied by 100.

“In the event of control, in particular because of the declaration of significant capital gains, it will be necessary, if necessary, to justify to the tax authorities the collection of these tokens from airdrop. In the situation where the investor has attributions free and also a link with the project, the investor could be requalified as a professional involving a recovery of part of his income from operations relating to cryptocurrencies.In the coming years on certain portfolios, the tax administration could try to requalify from the occasional investor (individual) to the usual (professional)”, warns Nicolas Verger.

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