Distributed Ledgers in Italy: Regulatory Framework and Pipeline 💫
What I want to talk about is the state of Italian regulation in the Blockchain sector and how the entire Italian legal system is moving to welcome from an economic and legal point of view the Blockchain industries.
A. INTRO 💁
Below I traced an intro with some very general aspects of the current regulatory context of DLT technology in Italy, that could be reassembled in the following five points.
(1) Italy moved quickly enough, starting from the approach that the European Union has begun with the first ECB report of October 2012.
(2) Italy moved within the lines of a sustainable and viable regulation, following what the friendly but prudent attitude expressed by the ECB was.
(3) Italy privileged the alternative and voluntary monetary nature of cryptocurrencies defining cryptographic tokens as “Virtual Currencies” intended as means of payment without legal tender.
(4) Although the broad convergence over their monetary nature in Italy, virtual currency might involve different regulatory risks, as occurred in 2017 for some decisions taken by Courts or Consob (National Commission for listed companies and the stock exchange), respectively under the perspectives of the consumer’s protection or the laws of the financial instrument.
(5) In any case, Italy, especially in the last few months, is supporting initiatives for the development of a public policy for the Blockchain sectors, and there are many exciting measures in the pipeline. 😹
B. ITALIAN BLOCKCHAIN REGULATORY ROADMAP 🏃
Now, we try to go deeper by drawing a sort of roadmap with all the fundamental steps covered over the years to bring out cryptocurrencies and the Blockchain in the Italian legal system.
i) On January 2015, Bank of Italy issued the first warning to consumers regarding risks related to cryptocurrencies use.
ii) Soon after the CJEU Bitcoin Ruling on 2015, Italian Revenue Agency (Agenzia delle Entrate), on September 2016, released a resolution about VAT and the yearly cap of capital gain exemptions.
iii) In 2017 Verona Civil Court has examined a case relating to a transaction based on cryptocurrencies, and considered that the Consumer Protection Act applies to it as part of an online offer of investment instruments.
iv) Legislative Decree № 90 of May 2017 defined virtual currencies and subjected virtual currency providers to the regulations established for traditional money exchange operators and to the AML proper discipline, wholly reformed by the same Legislative Decree.
v) To that effect, Legislative Decree № 90 charged the Ministry of the Economy and Finance to issue a ministerial decree setting forth the modalities and timelines for the proper performance of virtual exchangers activities throughout the country.
vi) Accordingly, in January 2018, the Ministry of Economy and Finance’s Treasury Department published a public notice, and it is expected that the ministerial order will be issued during the upcoming months.
vii) On April 2018, another statement from the Italian Revenue Agency has established how incomes deriving from virtual assets must be accounted for and declared within the annual income certification.
viii) On May 2018, it has been formalized a politic commitment to the introduction of Blockchain in the Government agreement entered into from the political forces that won the elections.
ix) On September 2018, Italy has signed the Blockchain Eu Partnership and launched a call of experts to help the Minister of the Economic Development to design a national Blockchain strategy.
x) On September 28th, 2018, the Italian Revenue Agency officially answered a question on the tax treatment of the Initial Coin Offerings and related tokens giving the first guideline on the subject in Italy.
xi) On October 2018, in the draft of an annex to the Fiscal Decree (so-called Simplification Decree), which will have to accompany the forthcoming economic maneuver in preparation, a proposal has been inserted that, by the principle of technological neutrality, confers to all data and information recorded with a DLT technology the same validity and legal strength of a data certification made with other techniques. Moreover, the same draft contains a general definition of distributed registres and establishes a Venture Capital Fund at Cassa Depositi e Prestiti S.p.A., controlled by the Minister of the Economy and Finance (MEF), to invest in innovative Blockchain startups that support Made in Italy. 🚀
xii) In the official note of the Ministry for Economic Development (MISE) of October 29, 2018, it is reported that the Interministerial Committee for Economic Planning (CIPE), at the request of the same Ministry has allocated a 100 million euros for the development of emerging technologies (artificial intelligence, Blockchain, Internet of Things). 💣
C. THE MOST RELEVANT ITALIAN BLOCKCHAIN REGULATORY PROVISIONS 💪
After this quick roundup of information, let’s examine the most relevant Italian regulatory measures.
1 Legislative Decree № 90 of May 2017
At this regard, we have to start from what it is doubtfully the most crucial regulatory measure assumed by Italy over Blockchain topics with a primary law of the State, the Legislative Decree № 90 of May 2017.
Shortly before The European Parliament approved the modification of AML4 Directive with provisions regarding the virtual currency use, Italy has anticipated some rules with the said Legislative Decree, including Exchanger as an obliged entity for AML purposes.
Completely reforming our old national anti-money laundering discipline, the first important thing that has made by the Legislative Decree № 90 of 2017 is to define, through a regulatory provision of primary grade, what are the virtual currencies. These were identified, as the 2014 EBA’s Opinion had done:
“ like a digital representation of value that is neither issued by a central bank or public authority nor necessarily linked to a legal tender, but is used by natural or legal persons as a means of exchange for the purchase of goods and services and that can be transferred, stored or traded electronically”.
The further important thing that the Legislative Decree № 90 has made is to define the Virtual Currencies Service Providers as :
“Any natural or legal person providing professional services to third parties functional to the utilization, the exchange, or the storage of virtual currencies, and to their conversion from or in currencies having a legal tender.”
Then, Legislative Decree has divided the AML obliged entities into five categories, including the virtual currency utilization services providers — i.e., the service providers engaged in the use of virtual currencies, limited to the conversion of the virtual currency from or to a legal tender — in the category of “Non-Financial Operators.”
In details, the AML Italian reform, based on the Legislative Decree № 90, has limited the AML obligations to only the Exchanger platforms, becoming the very first European national legal framework that has introduced rules, with a first level regulation, on Virtual Money Exchanger.
Moreover, under the Italian legal perspective, the Virtual Money Exchanger became a self-standing operator but in all respects equated to the traditional money changers. In fact, in this regard, the Italian choice was to extend to the Virtual Currencies Exchangers the relatively light legal status that has a standard exchanger that operate with foreign currencies. That, as early as 2010, with the structural reform of the credit, is no longer considered financial intermediary, but a merely commercial operator required to request only a standard commercial license as it would be obliged to make a person who wanted to open an ordinary coffee shop. The only differences with an average commercial operator established by Legislative Decree № 90 are i) the obligation to register its economic activity in a special section of the public register of money changers held by a minor authority, called OAM (an administrative body, independent from Bank of Italy); and ii) to observe some of the most relevant AML obligations.
So, in short, at present, under the Legislative Decree № 90, there is no particular kind of license to be requested and no authorization to perform, but only the administrative obligation to require registration in a public list of active operators.
2 MEF Virtual Currency Exchange Ministerial Order draft
The Legislative Decree № 90 charged the Ministry of the Economy and Finance (MEF) to issue a second regulatory level measure through a ministerial order.
Accordingly, the Italian MEF, in January 2018 has published a public notice with a call for comments on the ministerial order proposed scheme, and it is expected that it will be issued in the final text during the upcoming months. The released draft aims:
- to allow the government to monitor virtual currencies phenomena, and authorities to obtain data to conduct investigations to contrast money laundering and terrorist threats;
- to require to virtual currencies related services providers to register them-self in a MEF selected list sending a certified email to which includes: (a) an electronically signed form; (b) communication of the beginning of activities; and (c ) personal or company’s details and documents.
3 Italian Virtual Currencies Taxes
To the fiscal situation of virtual currency in Italy should be devoted to an adequate investigation, for the many provisions adopted from the Italian Revenue Agency since 2016, and also because Italy offers a favorable tax treatment and various other fiscal possibilities to incentivize and attract businesses concerning the use of cryptocurrencies. But, I can now only give you a very general picture of the Italian tax situation.
From a tax standpoint, following the first CJEU first Bitcoin VAT taxation Ruling in 2015 (case C-264/14), as early as 2016, the Italian Revenue Agency with a general resolution clarified that:
- the exchange services of fiat currencies vs. Bitcoin and vice versa are transactions exempted from VAT;
- revenue from the exchange services carried out professionally is subject to VAT and income taxes;
- the cryptocurrency amount which at the end of the fiscal year is directly owned by the Exchangers should be valued by referring to the average official quotation of online platforms where virtual currency trades occur.
Moreover, considering Bitcoin (or other Altcoin) to be a foreign currency, as the Italian Revenue Agency has made in 2016, meaning gains from trades would be taxed as well as the exciting currency capital gains are the tax of 26%. But, if a wallet holds less than 51,645 euros ($60,000) for more than seven consecutive days in a calendar year, then a taxpayer has not paid the 26% tax on any gains made between the purchase price and the exchange price at year-end.
D REGULATORY RISKS 🌵
Despite all the above, depending on how a business it is structured, there may be in Italy some regulatory risks deriving from consumer’s protection and securities and financial instruments discipline.
Especially in front of fraudulent investment schemes and scams, certain cryptographic tokens and related activities could also potentially fall within the financial instrument provisions.
Think about, in fact, to the cases of unauthorized financial services whether — according to the general principles developed by Consob over the years to distinguish financial instruments — there it involves: (i) a contribution of money; (ii) a connection to a risk; (iii) a promise or an objectively motivated pre-expectation of profits. G, and given the main difference that exists between a contribution of money made for consuming purposes from that established for investment purposes that whenever the money was giving is aimed to increase what invested, and not to the enjoyment of real assets.
In this regard, it is appropriate to recall the decisions of Consob of 2017 (in particular the № 19866 of 20 April 2017 and the Notice № 5 of 24 April 2017), with which, pursuant to the Consolidated Law on Finance (Testo Unico della Finanza), it has approved the prohibition of advertising via the website in relation to the public offer for ‘cryptocurrency extraction packages’, and some companies have been sanctioned because they were not authorized to perform investment activities services in Italy, by any means and, therefore, including via the website.
On this last point, it is right to report one of the first and most important judicial decisions made in Italy by an ordinary judge, the Court of Verona.
The Verona Civil Court, in January 2017, has decided to apply the Consumer’s Protection Act to a case of an online exchange of virtual money vs digital tokens of a Ukrainian company within a crowdfunding operation (an ICO), considering this kind of operation like a public offer of an investment contract at distance, i.e. online to be carried out in compliance with the same Italian Consumer’s Protection Act, that, in relation to the online investment services, requires the financial license of the operator and a series of pre-contractual information obligations that affect the operator of the portal on which the offer is made to the public.
E BLOCKCHAIN ITALIAN PUBLIC POLICY 💥
And we come to the most interesting part of this long article: the lines of development already present in the Italian legal system that traces a precise trajectory on which Italy is going on. It could be openly said that Italy is encouraging as much as possible the innovation of the Blockchain and its economic impacts.
Italy was initially absent from the liaison between European countries last April to give life to the EU Blockchain partnership, due to circumstances deriving from past elections and the uncertainty that accompanied the birth of this current government. But at the end of last September, Italy signed the European alliance, and immediately after it is launched the call of Blockchain experts to help MISE to outline a national strategy of development of the Blockchain in the country.
Also, there are some very interesting measures in the pipeline:
- the possibility of setting up a Venture Capital managed by Cassa Depositi e Prestiti S.p.A. to encourage startups in the Fintech and Blockchain areas;
- a first public allocation of 100 million euros for the development of the emerging technologies, and also for the Blockchain sector (see the official note MISE of October 29, 2018);
- the proposal to equate data recorded with a DLT to digital information and data recorded through other technologies, according to a principle of technological neutrality that would disclose a strong market opening for some Blockchain applications (i.e., the authenticity of legal documents and contracts, digital identity or in the digital public administration).
In short, Italy has started up and let us not forget that the country is already well equipped with regulatory elements of sufficient legal certainty to allow the development of economic initiatives related to the use of DLT.
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Giulia Arangüena is a Lawyer at ADLP Studio Legale and Blockchain Super Connector at LegalBlock, ICOs Legal Advisor, E-finance teacher at the Università di Pisa, AML/KYC & Compliance at MistralPay.
DISCLAIMER: Blockchain is a disruptive technology that introduces several doubts about its legal nature. LegalBlock aims at being an open forum in which its members and invitees can share views and comments on such technology and its impact on different legal systems. However, the views and discussions expressed in LegalBlock are merely personal and do NOT constitute legal advice of any sort and do NOT necessarily reflect those of LegalBlock.
