With the decision of the Federal Fiscal Court (Bundesfinanzhof, BFH) of February 28, 2023, the highest German fiscal court has now for the first time taken a position on income tax issues relating to crypto assets – Bitcoins and Co.
In it, the previously issued fiscal court decisions are followed and also essential excerpts of the BMF letter of May 10, 2022 are confirmed.
- What now applies to crypto profits generated by the sale with crypto assets?
- How will exchanges be valued?
- Which speculation period is valid?
We have summarized these questions for you in the following article.
What does the BFH ruling specifically say in the case of crypto profits?
- Profits generated from the sale of cryptocurrencies are subject to income tax within the speculation period (Section 23 EStG).
- Exchange transactions within the wallet or exchange (exchange of Bitcoin to Ether or in fiat) are of tax relevance within the speculation period.
In detail, the BFH has taken the following position on the essential tax characteristics:
Are crypto-assets economic assets for the BFH?
According to the BFH, currency tokens such as Bitcoin (BTC) or Ethereum (ETH) are economic goods that are to be regarded economically as a means of payment and can be valued independently.
According to Section 23 EStG, economic goods are not only objects in the sense of civil law such as things and rights, but also “positions” that go beyond civil law and from which concrete opportunities and advantages for the business arise.
Consequently, the BFH allows it to suffice for the economic property that an opportunity or possibility of pecuniary relevance is obtained for which a consideration is to be paid. In this context, the classification under civil law is not of significance for tax purposes.
According to the BFH, currency tokens constitute an economic means of payment. However, they neither fall under the term “money” nor are they to be classified as “e-money”. However, Bitcoin and Ether are to be regarded as real means of payment. In justification, the BFH stated that they have a market value, are traded on trading platforms and exchanges and can also be used directly for payment transactions.
Does the BFH consider trading with crypto-assets to be structurally comparable to foreign currencies?
Trading with Bitcoins is not to be equated with gambling or winning the lottery, but is to be viewed structurally like foreign currency transactions and thus in principle taxable
There is a structural comparability with foreign currencies. According to case law, foreign currency amounts are acquired within the meaning of Sec. 23 EStG if they are acquired in exchange for euros or another foreign currency (fiat currency). They are disposed of if they are exchanged back into euros or converted into another foreign currency.
Does the exchange of crypto assets have tax law relevance for the BFH?
The BFH confirms that the exchange between currency tokens can also have relevance under tax law.
If a Bitcoin is exchanged for Ether, it is a taxable transaction. This is because it is considered a disposal of one cryptocurrency and acquisition of the other cryptocurrency. This may have tax consequences. It is irrelevant whether the exchange takes place on a trading platform or privately.
The judges stated, “Currency tokens are acquired within the meaning of Section 23 EStG if they are acquired in exchange for euros, for another foreign currency or for other virtual currencies; they are disposed of within the meaning of the provision if they are exchanged back into euros (or into a foreign currency) or exchanged into other virtual currencies.”
Is there a structural enforcement deficit – i.e. is no uniform taxation ensured in the crypto world?
According to the BFH: No, there is no structural enforcement deficit.
The BFH also did not accept this argument. There is no structural enforcement deficit in the taxation of capital gains from cryptocurrencies . There would be no conflicting collection regulations that would oppose or prevent the taxation of cryptocurrencies.
In other words, the tax authorities are able to carry out the taxation of gains from crypto trading and have all the necessary tools to prevent tax evasion related to cryptocurrencies
After the BFH ruling, what is particularly important to keep in mind for crypto asset transactions?
So, it remains important to document each and every transaction on the wallet with acquisition costs and disposal proceeds and the respective dates.
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In case you have any questions in this regard or in general, please do not hesitate to contact me!
Your Christopher Arendt
Questions about your crypto investments in relation to the BFH ruling?
Specialist lawyer for tax law
Managing Director of ACCONSIS
Dr. Christopher Arendt
Criminal tax proceedings
International tax law
+ 49 89 547143
or by e-mail email@example.com