The Relationship of Capital Gains from Virtual Currencies, Income Tax, and Corporate Tax Profits from trading bitcoin (virtual currency) and other bitcoin transactions can be considered as income under the income tax and corporate tax laws of Japan, and thus can be considered subject to income tax or corporate tax. Relationship with Income Tax Profits from trading bitcoin, when coming from continuous trading for the purpose of generating profit, can be considered as income from business activities or miscellaneous income. However, in the case of the sale of bitcoin held for investment purposes it can be considered a capital gain. Transactions where bitcoin is received or paid as compensation for assets or services rendered can be treated as a form of barter exchange. Specifically, income recognized as arising from business-related exchanges carried out by a sole proprietor comes under the umbrella of income from business activities. Note that bitcoin acquired as a form of payment is not considered an inventory asset. It is not clear how they should be evaluated in a taxation context or how profit or loss should be recognized, and further guidelines from taxation authorities are required in these cases. As discussed above, there is the possibility that capital gains from bitcoin could be treated as business income or miscellaneous income under income tax law. There is a need to carry out a review for each individual taxpayer, in line with the specifics of their situation, because there is no clear guidance regarding this kind of income classification under current laws and regulations. Relationship with Corporate Tax Since the corporate tax law of this country does not categorize income the same way income tax law does, profits and losses arising from the trade or other transactions of bitcoin are considered taxable income and are thus subject to corporate tax. As a basic rule, the calculation of income should be carried out in line with generally accepted accounting principles (GAAP), because the income calculations for corporate tax are based on accounting standards. For example, if bitcoin is held for the purpose of sale or exchange for other goods, it should be treated as an inventory asset. Valuation of bitcoin inventory should, in line with accounting standards related to inventory assets, be calculated using the average cost method. If bitcoin is used as a method of payment or as a method of paying dividends, it should be treated as a barter exchange under accounting processes, and the difference between the book-value and market price at the time of the transaction should be recognized as a profit or loss. However, bitcoin acquired as a method of payment possesses the same uncertainties as in the case of income tax, meaning that guidance from the taxation authorities is required. When bitcoin has been acquired for investment purposes, there is the possibility that the approach may differ from that taken in the case of electronic records, which differ from intangible assets such as literary works. As discussed above, with regards to treatment under corporate tax law there is a need to carry out a review of each transaction related to the taxpayer in line with their relationship to corporate accounting principles. (References) 大阪国税不服審判所次席国税審判官 土屋雅一, 「ビットコインと税務」, 税大ジャーナル 23, (2014/05). Osaka National Tax Tribunal Associate Chief Appeals Judge Tsuchiya Masakazu. “Bittokoin to Zeimu” [Bitcoin and Tax], Zeidai Journal 23, no. 5 (2014).