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Cryptocurrency taxes
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At least everyone has heard that there is a lot of money to be made by investing in Bitcoin and other cryptocurrencies, but possibly also to be lost. It has also become easy to create an account and exchange real currencies for so-called cryptocurrencies. What many people forget: keep taxes in mind when it comes to cryptocurrency!

Increasingly, purchases can also be paid for with cryptocurrencies. You can even become a bank yourself and issue loans in cryptocurrencies. Overall, it's about digital assets that appear in various forms

 

  • Cryptocurrencies (Bitcoin, Litecoin, Monero)
  • Platform-based tokens (Ethereum, NEO, EOS, DIA)
  • Utility token (OmiseGO, Dent)
  • Transaction tokens (Ripple, Stellar)

 

Since then on April 14, 2021 Coinbase When the crypto exchange went to Wall Street and got off to a sensational start, the cryptos seem to have finally arrived in the real world of capital. Switzerland and other countries are also planning to introduce crypto exchanges.

Table of Contents

Is Bitcoin a Currency?

In Wikipedia A currency is defined in such a way that, in a broader sense, it represents the constitution and order of the entire monetary system of a state. This is particularly reflected in the definition of the coin and note system within the Wämeeting room. The currency area is the area of ​​validity of a currency Payment Methods. It enables the transfer of goods and services without providing anything in return in the form of other goods and services. The type of money recognized by the state (the legal tender of a country) is also referred to as a currency or monetary unit. In this case, currency is a sub-form of money. Most currencies are traded internationally Currency märcts traded.

Whether Bitcoin & Co. are a currency in this sense is controversial. According to the current understanding of the German tax authorities, due to the lack of financial supervision, it is not a currency, but rather intangible assets that are treated legally and for tax purposes like other tangible and intangible assets.

In the meantime, almost all countries, including Germany and Switzerland, have their own state cryptocurrencies. There are currently more than 10.000 such crypto currencies in circulation. They are by no means illegal and are increasingly being used as a means of payment. As long as the issuing state recognizes its own cryptocurrency, in our opinion no other tax treatment can be permitted than if one speculates in other currencies.

How high is the tax on crypto currencies in Germany?

As far as the topic of “cryptocurrency taxes” is concerned: Anyone who invests their money in a foreign currency can receive currency gains tax-free after one year, provided they do not receive any interest on the investment. If you receive interest, no matter how little it is, the holding period is extended to 10 years. The tax authorities apply this regulation analogously to the taxation of profits from cryptocurrencies. To this end, she relies on a provision in Section 23 EStG.

Cryptocurrency: Taxes must be paid in the following cases

Taxable are:

Sales transactions for other assets where the period between acquisition and sale is not more than one year. When purchasing and selling several similar foreign currenciesoperatingIt is assumed that the amounts purchased first were sold first. For assets within the meaning of sentence 1, from the use of which as a source of income income is generated at least in one calendar year, the period is increased to ten years;

On the topic of “cryptocurrency and taxes”, the tax authorities point out that Bitcoin & Co. is not a currency. At the same time, however, the taxation of profits from the sale of cryptos is treated in the same way as investments in foreign currencies with regard to the holding period. In order to justify the taxation of profits from the sale of cryptocurrencies, these are considered a “Economic good" treated.

Cryptocurrency and Taxes: What is an Economic Good?

The term "Economic good“In the tax area, it only applies to business assets and is only defined very vaguely (ESTH 4.2.). According to case law, securities are definitely included. However, it is not clear whether cryptocurrencies are a security.

So far there are only opinions in Germany as to whether taxes should be paid on the profits from the sale of cryptocurrencies. There is a lack of a clear legal definition and also a reliable, highest court ruling on the classification of cryptocurrencies or crypto assets. The Nuremberg Finance Court decided in its decision v. April 8.4.2020, 3, Ref. 1239 V 19/XNUMX vaguely stated that möpossibly a specific cryptocurrency could represent an economic asset and its purchase and sale could therefore be taxable. There are no judgments on this. However, in its judgment of March 02.03.2018, 5 2508 K 17/XNUMX on the purchase and sale of final tickets to the Champions League, the Baden-Württemberg Finance Court made it clear that there was a taxation of speculative transactions with cryptocurrencies not consider permissible.

In contrast, the Berlin-Brandenburg Finance Court had no doubts in its decision in the interim legal protection proceedings (decision of June 20.06.2019, 13 13100 V 19/XNUMX) that speculation with cryptocurrency results in taxes. However, the Nuremberg Finance Court expressly did not agree with this decision.

Object to taxation

This leaves the question of tax treatment open. The tax offices still tax profits from the sale of cryptocurrencies. Anyone who receives such tax notices should definitely consult a tax advisor with appropriate experience and file an objection against the taxation of cryptocurrencies and apply for the suspension of enforcement. Otherwise, he may have had bad luck if the question is finally resolved in the sense that the taxation of profits from crypto transactions remains tax-free.

Tax exemption would be clear if the cryptocurrencies were actually currencies; because speculation in currencies is not subject to taxation because money is not considered an asset. Any legal tender recognized by a state is referred to as a currency or monetary unit.

The current handling by the German tax administration is neither covered by the law nor by the highest court case law. Cryptocurrencies are treated like movable assets. According to Sections 22 and 23 EStG, profits are taxed if the asset is held for less than a year.

Case 1: Bitcoin is not taxed

According to the German tax authorities, anyone who bought Bitcoin the year before last and now sells it again remains tax-free on the profits they make. Losses from the sale (within one year of acquisition) may not be offset against other income. However, they should still be declared so that they can later be offset against profits from sales. Losses from the sale of cryptocurrencies that have been held for more than a year cannot be offset for tax purposes.

Case 2: Bitcoin is taxed

Anyone who has held the cryptocurrency for more than a year will still be taxed if there was an “interim economic use” of the currency, for example by giving out a loan from which interest was earned. According to the German tax authorities, the exchange into another cryptocurrency or into a normal currency within the holding period is also taxable.

To calculate the holding period, the tax office assumes that the coins purchased first were also sold first. With every sale, you give away the coins that have been in the depot for the longest time.

Basic rule when taxing cryptocurrencies: Profits from the sale of assets are only taxed if, after offsetting losses, the profits from all sales amount to more than 600 euros per year. This is not an allowance that is deducted from profits, but rather a so-called allowance. Anyone who makes a profit of 601 euros pays tax on the entire amount.

Information in the tax return

Regardless of the fact that we consider the profit from the sale of cryptocurrencies to be non-taxable, these profits should still be reported to the tax office informally, i.e. in a letter. This letter must point out the unclear legal situation and the presumed tax exemption. This should be stated as the reason why the profits are not declared on the tax return forms. If you take a different route, you enter the profits that are taxable from the tax office's point of view into the system for other income (SO). However, immediately after receiving the tax assessment, an objection should be filed and a suspension of enforcement should be applied for.

Cryptocurrency taxes in connection with international tax law

If cryptocurrencies are economic goods, then they can also be located in different countries. The profit from the sale can therefore arise in a country other than the country in which the owner of the asset is resident for tax purposes. When it comes to “cryptocurrency and taxes”, two countries initially have access to the right to tax. If the countries have concluded a bilateral agreement to avoid double taxation (DTA for short), it must be clarified step by step based on the specific structure of the agreement which country has to forego exercising its rights or in what way double taxation is avoided.

The first step is to determine the tax residence of the person to whom the profits are to be attributed. It must then be clarified in which country the asset is located. This will not be easy to determine with cryptocurrencies. Due to the diversity of DTAs, different results are achieved in different countries.

Taxation and Location

Germany has agreed with most countries that profits from the sale of assets are taxed where the owner is resident. A distinction is made as to whether the asset belongs to business assets or to private tax assets. If the crypto asset is part of a business asset, taxation takes place in the country in which the business is domiciled. This means that when designing the system, you can decide which country should have the right to tax. When selecting the country, it also plays a role whether and how this country taxes capital gains. In this respect there are significant differences.

It must also be checked whether the crypto assets do not represent a share in taxable business assets or in real estate assets. Then the taxation law according to the DTA also changes in such a way that taxation no longer generally takes place in the country in which the owner is resident. In some DBAs the double taxation avoided by the state of residence exempting the income and therefore not taxing it at all. In other DTAs, both states can tax the income in parallel, but take into account the tax paid in the other state.

What percentage of taxes on Bitcoin?

With over 10.000 different cryptocurrencies and millions of crypto assets, simple answers to the question of taxation are not possible. It takes experience and careful examination to ensure that the sale of such investments does not result in tax risks and ultimately even conflict with criminal law. Since the legal situation in Germany is not clarified, cards should be played openly with the tax office, but taxation of profits from the sale of crypto assets should not be accepted without consideration. Tax notices that have already been received must be checked to see whether they can still be contested.

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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