New BMF regulations: Clarity and security in the taxation of cryptocurrencies

In March 2024, the Federal Ministry of Finance (BMF) published a draft amendment on the taxation of cryptocurrencies. This draft clarifies tax declaration, cooperation and record-keeping obligations that were already discussed in July 2022 but not implemented. Our article sheds light on the details.

Initial situation

On March 6, 2024, the Federal Ministry of Finance (BMF) announced a draft supplement to the existing letter on the taxation of cryptocurrencies dated May 10, 2022. In particular, this supplement contains clear guidance on tax declaration, cooperation and record-keeping obligations. These regulations already existed in a draft from July 2022, but were not included in the current letter. The BMF emphasizes the need for this addition in order to ensure clarity and certainty in the tax treatment of cryptocurrencies.

Content of the supplementary draft

The supplementary draft extends the existing letter dated May 10, 2022 with two additional chapters:

• “III. tax declaration, cooperation and record-keeping obligations”
• “IV. Application regulations”

In addition, some changes are also made in the first two chapters.For example, the explanatory notes point out that taxpayers must adjust the data used in tax reports correctly and in accordance with tax requirements.

Key innovations at a glance

Tax declaration, cooperation and record-keeping obligations are to be understood as follows:

• Tax declaration obligation refers to the obligation of taxpayers to declare their income from cryptocurrencies in their tax return. This includes not only capital gains from sales transactions, but also income from lending or staking and any tokens received through airdrops.
• The duty to cooperate requires taxpayers to actively participate in the tax verification process, for example by providing transaction data.
• Record-keeping obligations require the systematic documentation of these transactions in order to enable subsequent verification by the tax authorities. This includes purchase, sale and exchange transactions as well as income from lending, staking or airdrops.

These additions are intended to create clarity and security in dealing with crypto-assets for both taxpayers and the tax authorities.

Concrete effects for taxpayers

For crypto traders, this means an increased need to carefully document their transactions and be transparent with the tax authorities. All relevant records and documents relating to transactions with virtual currencies and tokens must be kept in accordance with tax regulations. This applies to both paper and electronic documents and data.

Taxpayers are obliged to cooperate in determining the tax situation and to provide all relevant information and documents. Of particular note is the extended duty of cooperation of taxpayers in accordance with Section 90 II AO for trading activities via foreign platforms. This requires careful recording of all transactions. If taxpayers do not cooperate sufficiently or documents are missing, the tax authorities can estimate the tax bases. These estimates should be realistic, but the lack of documents can still lead to an unfavorable assessment for the taxpayer.

Nevertheless, the draft also offers simplifications. These include, for example, the option to consider the use of stock market prices for acquisition costs as optional rather than mandatory. This could be particularly advantageous for active traders and investors, who could potentially have better opportunities to optimize their tax burden.

What data does the BMF require?

The current draft contains various documents and data that can be requested from the tax office:

• Date of acquisition, quantity acquired and type of acquisition transaction as well as exchange or trading platform used
• Date of disposal, quantity disposed of and type of disposal transaction
• Documentation of reallocations within wallets for wallet-related application of the average or FiFo method
• Wallet holdings as at December 31 of the previous assessment period and the previous year
• Wallet addresses
• Transaction hash values
• Account details for the exchanges used

Conclusion

With the introduction of these new regulations, Germany is taking another step towards the legalization and regulation of the crypto market. While this may be an additional burden for some, it also offers the opportunity for greater clarity and security in a rapidly evolving market.

Crypto investors should follow developments closely and seek professional tax advice where appropriate to ensure they fully understand and can meet their obligations. Through this initiative, the BMF underlines the recognition of the growing importance of cryptocurrencies in the German economy and promotes trust in the market and responsible participation in the digital economy by creating clarity and fairness.