An entrepreneur invests over €60,000 in a trading bot that was supposed to yield a return of 10 to 20% per month. The bot turns out not to exist and the provider is convicted of fraud. The entrepreneur wishes to claim the loss as a business expense, but the court of appeal rules that the investment does not constitute a source of income. There is no objective expectation of a benefit, as the entrepreneur never gained any insight into how the bot worked.
From events to crypto
The entrepreneur runs a sole trader business that organises courses and events on coaching and personal development. Through his business network, he meets someone who claims to have developed a trading bot that automatically trades in cryptocurrency. The provider presents his product at one of the entrepreneur’s events and makes a professional impression. He shows screenshots demonstrating that the bot is generating a steady return. The entrepreneur, who has himself trained as a blockchain professional, becomes interested. He starts with an investment of one thousand euros and sees via an app that his investment has tripled in seven months. He decides to invest more and eventually transfers over sixty thousand euros.
Fraud exposed
When the business owner tries to withdraw his money, the provider comes up with excuses. The business owner reports the matter as fraud. The criminal investigation reveals that the trading bot never existed. The screenshots were fabricated. The provider is convicted of defrauding 65 victims. The entrepreneur then submits an amended income tax return, in which he claims the loss as business expenses. The tax inspector refuses to allow the deduction.
No objective expectation of a benefit
The central question before the court is whether the investment in the trading bot constitutes a source of income. This requires participation in economic activity, the subjective intention to gain a benefit, and an objective expectation of a benefit. The first two conditions are not in dispute. The third, however, is. The entrepreneur argues that he could reasonably have expected a benefit because the provider came across as convincing, demonstrated results and had also defrauded 65 others. The Court of Appeal rejects this argument. The decisive factor is that, despite repeated requests, the entrepreneur never gained an understanding of how the bot worked. The provider’s unsubstantiated claims, however convincing they may have been subjectively, do not mean that, by objective standards, a financial benefit could reasonably have been expected.
No connection with the company
The entrepreneur argues, in the alternative, that the loss is linked to his existing business. He intended to use the investment to gain knowledge so that he could develop courses on crypto trading. The Court of Appeal also rejects this argument. The entrepreneur has not demonstrated that the investment was intended to develop courses. Nor has he substantiated that he invested using business assets. The loss is not deductible under Box 1.