Can we generate tax report in USD and use it in a country with a different currency?

Koinly Support
1

Describe the problem:
I’m creating tax report for Denmark. When I use DKK as a base currency of my Koinly account, I receive all the results in DKK. That’s nice. But when I change the base currency to USD (because I used mostly USD/USDT for trading), I receive a much more favourable result with lower income/gains and higher cost/expenses.

For instance, when my base currency is DKK, my capital gains are 8,763 DKK. When I switch to USD, my capital gains are 908 USD, which is 6,405 DKK. Nice difference.

I have two questions.

  1. Why does that happen?
  2. Is it legal to generate a tax report in USD and use it to report my taxes in Denmark, eventually using current exchange rates or those on the end of the 2021?
2

Re Q #1: The difference in the outcome that you have described may occur because when you use USD to calculate your capital gains in USD throughout the year, you are not taking into account changes in the USD/DKK exchange rate that have occurred between the dates of purchase and the dates of sale of your crypto assets. You are converting the net USD capital gains to DKK using a particular exchange rate that may be a year end rate or even an average annual rate, but that will not take into account the actual changes in the FX rate that apply to all of your transactions. For example, you may have crypto that you acquired in previous years when DKK was lower vs USD than in 2021. This would produce higher gains in 2021 using DKK as base currency than would be the case if you are using USD as base currency and converting net gains at the end of 2021 to DKK.

RE Q #2: It would not be compliant with tax law in Canada to calculate capital gains on foreign currency asset trades using the prevailing foreign currency values and then converting the net foreign currency capital gains to CAD at the end of the tax year for reporting purposes. There are lots of articles explaining this issue for Canadians in relation to securities portfolios because we tend to do a lot of trading in US stocks and the USD/CAD exchange rate has varied significantly over time.

I expect that the laws in other jurisdictions would be similar but you should research this in the context of Danish law.

Hope this helps.

3

Thank you! It helps.