Personal income tax and cryptoassets: The “technical conversion”

In the recent Binding ruling no. 28969, of October 31, 2025, the Portuguese Tax Authorities (“PTA”) clarified its stance on the tax treatment of exchanging a cryptoasset for a stablecoin as an intermediate step before converting it into euros. Specifically, the PTA classified this intermediate cryptoasset exchange as a technical conversion with no independent tax relevance. While this PTA interpretation appears pragmatic, it creates uncertainty due to its lack of explicit legal provision. Therefore, cryptoasset investors and taxpayers must comprehend the tax implications of this position.

Taxation of capital gains on cryptoassets: How does it work?

The Portuguese Personal Income Tax Code (“PIT Code”) establishes a dual framework for taxing capital gains on cryptoassets. On one hand, Article 10(19) of the PIT Code provides that “gains obtained, as well as losses incurred, resulting from the transactions envisaged in paragraph 1(k) relating to cryptoassets held for a period of 365 days or more, are excluded from taxation.” This tax exemption applies to any form of for-value disposal, whether involving fiat currency, other cryptoassets, goods, or services.

On the other hand, Article 10(20) of the same Code stipulates that, for cryptoassets held for less than 365 days, if the consideration takes the form of other cryptoassets (“crypto-to-crypto”), “there will be no taxation, and the cryptoassets received will be attributed the acquisition value of the cryptoassets delivered.”

What is the objective of the cryptoasset tax regime?

This tax regime aims, on the one hand, to tax speculative gains by imposing taxation on capital gains from cryptoassets held for less than 365 days. On the other hand, it establishes a deferral of taxation for crypto-to-crypto swaps, postponing taxation to the moment of conversion into fiat currency, when the gain is actually realized.

What was at issue in this Binding Ruling?

In the case under analysis, a taxpayer asked the PTA about the tax treatment of a two-step transaction:

• the conversion of a cryptoasset held for more than 365 days into a stablecoin (such as USDC), due to the absence of a direct trading pair with euros,
• followed by its immediate conversion into fiat currency.

The aim was to confirm whether the long-term capital gain, calculated at the end of the transaction, would qualify for tax exclusion.

What was the PTA’s position?

The PTA concluded that, in these circumstances, the intermediate conversion into a stablecoin, if instrumental and immediate, constitutes a “technical conversion” with no independent tax relevance. Consequently, the taxable event would arise only upon the final conversion into euros. It further affirmed that if the original cryptoasset was held for more than 365 days, any capital gain realized from the final conversion would be excluded from taxation, thereby validating the taxpayer’s position.

Critical analysis: Problems with the “technical conversion” concept

The PTA’s reasoning relies on two primary principles:

• The primacy of the 365-day holding period for tax exclusion.
• The fiscal neutrality of crypto-to-crypto swaps.

However, the PTA’s position is legally weak in its interpretation of the underlying rules. By creating the concept of “technical conversion” to disregard the intermediate swap, the PTA fails to recognized that the stablecoin is a new cryptoasset distinct from the original. The law is clear: exchanging one cryptoasset for another constitutes a disposal. Consequently, the holding period for the newly acquired asset (the stablecoin) starts from zero, and its acquisition value corresponds to its market value at that time. This treatment differs from that applicable to swaps involving cryptoassets held for less than 365 days, where the acquisition value of the cryptoassets received is that of the cryptoassets delivered.

Strict application of the Law in three steps

A strict interpretation of the law would lead to a different outcome, as we outline below:

1. Exchange the original cryptoasset: The exchange of a cryptoasset held for more than 365 days for a stablecoin qualifies as a for-value disposal. The capital gain from this transaction is excluded from taxation under article 10(19) of the PIT Code.

2. Stablecoin as a new asset: The stablecoin constitutes a new asset with an acquisition value equal to its market value (in euros) on the date it was received in exchange. Its holding period begins on that same date.

3. Immediate sale of the stablecoin: The immediate sale of the stablecoin for euros qualifies as a second disposal. As the stablecoin was held for less than 365 days, the result from this transaction is relevant for personal income tax. In most cases, this transaction produces a short-term tax loss due to transaction fees and parity variations. Under article 55(1)(d) of the PIT Code, this negative balance can be carried forward and deducted from similar capital gains within the subsequent five years through aggregation.

What are the practical risks of the PTA’s interpretation?

Although the PTA’s interpretation seeks to provide a pragmatic solution, the creation of concepts lacking legal grounding introduces significant legal uncertainty. For example, the notion of “immediate” “technical conversion” into stablecoins raises several unresolved issues, including the following:

• How is “immediate” defined in this context?
• Under what conditions is a cryptoasset swap considered to have been “merely to facilitate” the disposal in fiat currency? 

These questions, which are not addressed in the law, would require the PTA to freely appraise each case, imposing an unnecessary and complex burden of proof on the taxpayer.

Conclusion: Legal certainty vs. “fiscal pragmatism”

Strict adherence to the PIT Code is not only the most legally secure approach for the taxation of cryptoassets, but also proves to be more tax-efficient, as it allows for the recognition of reportable tax losses. The interpretation advanced by the PTA in this binding ruling on the “technical conversion” of cryptoassets, while not binding on other taxpayers, introduces subjective criteria and imposes an undue burden of proof on taxpayers in the taxation of capital gains. However, it remains essential to examine each case individually, assess the potential tax implications of this interpretation for cryptoasset investors, and ensure that the required supporting documentation is in place for each step of the transaction.