France's Crypto Tax Plans Clash with Ambitious Bitcoin Reserve

In a whirlwind of activity, France has recently introduced two seemingly contradictory policies regarding cryptocurrency.

On October 31, the French National Assembly passed a significant amendment during its first reading, transforming the existing wealth tax, which was limited to real estate, into a more expansive tax on unproductive wealth. This redefined tax now explicitly includes digital assets.

Simultaneously, the right-leaning Union des droites pour la République (UDR) put forth a bill aimed at establishing a national Bitcoin reserve consisting of approximately 420,000 BTC. This initiative is designed to secure about 2% of Bitcoin's overall supply over a span of the next seven to eight years.

This dual approach highlights France's ambivalence towards cryptocurrency: one policy treats crypto holdings as stagnant assets ripe for taxation, while the other elevates them to the status of national reserves. Such a juxtaposition underscores the nation's struggle between fiscal prudence and aspirations for monetary innovation.

According to the amendment crafted by MoDem MP Jean-Paul Mattei and revised by Socialist MP Philippe Brun, a flat tax rate of 1% will be levied on net taxable wealth exceeding €2 million. Notably, the scope of taxable assets now encompasses previously exempt items, such as collectible cars, fine art, luxury yachts, and "actifs numériques" (digital assets), which includes cryptocurrencies.

The explanatory note clarifies that previously excluded assets such as “tangible movable property,” “digital assets,” and “life insurance policies for funds not allocated to productive investment” are now classified under the “unproductive” category.

Consequently, a French resident holding a significant crypto portfolio could be liable for an annual tax, even if they choose not to liquidate their assets. Critics argue that this approach essentially taxes unrealized gains rather than actual income, potentially discouraging investment in the digital finance sector. The proposal has faced significant pushback from France's crypto community, with industry leaders warning it may push trading firms and asset managers to seek more favorable regulatory environments abroad.

Concurrently, the UDR, under the leadership of Éric Ciotti, has proposed a law proposition aimed at establishing a public entity responsible for accumulating a national Bitcoin reserve of 420,000 BTC.

Details of the proposal include plans for state-funded mining operations, acquiring seized Bitcoin, and permitting tax payments in cryptocurrency. The bill positions Bitcoin as a critical asset that intertwines energy resources, monetary sovereignty, and digital infrastructure. Its proponents employ the rhetoric of sovereignty, likening Bitcoin to "digital gold" that can enhance national reserves amidst a climate of de-dollarization.

While the proposal faces significant challenges in a divided parliament, it reflects a burgeoning trend among Europe's right-wing factions, which increasingly view Bitcoin not merely as a speculative asset but as a strategic tool for governance.

Less discussed, however, are the specific mechanisms outlined for the accumulation of Bitcoin. The legislation mandates the newly formed public agency, Réserve stratégique de bitcoins, to secure 2% of the total Bitcoin supply (approximately 420,000 BTC) within a timeframe of seven to eight years, all while avoiding a direct impact on the state budget.

The bill suggests several potential funding sources, including mining operations utilizing surplus state electricity, reallocating confiscated cryptocurrencies from judicial processes, and even tapping into dormant public funds like those in the Livret A savings account.

Additionally, the proposal would empower French citizens to use Bitcoin for tax payments, which could further integrate cryptocurrency into the national fiscal framework, though the feasibility and acceptance of this measure remain to be seen.

Ultimately, France’s simultaneous pursuit of taxing unrealized cryptocurrency holdings while aiming to establish a national Bitcoin reserve paints a complex picture of the nation’s approach to digital assets. The conflicting agendas reflect an ongoing dialogue within the country about the role of cryptocurrency in the economy, its potential for generating revenue, and the strategies needed to navigate the global financial landscape.