Blockchain tax advice: Advice on taxes on crypto, NFTs and other digital assets

However, this digital transformation is creating new tax challenges and issues for companies in particular, e.g:

• How do companies account for their crypto income?
• What are the tax implications of trading crypto coins?
• Can I include the cost of taking out a crypto loan as a business expense?

These issues are of increasing importance as digital assets are increasingly becoming the focus of investors and companies.

The ACCONSIS blockchain tax consulting experts understand the complexity behind these issues. As tax advisors for cryptocurrencies and other digital assets, we support entrepreneurs, investors and investors in the correct declaration, calculation and optimal tax structuring.

Web3: Meaning, features and vision

Web3 is a decentralized technology platform to create a more open, secure and transparent internet – based on blockchain and other distributed ledger technologies. Web3 is based on a decentralized, community-centric application that is radically different from the one-way nature of our current Internet (Web2).

Web3 communities consist of individuals, developers and organizations working together to build the decentralized web. These communities are responsible for developing tools, protocols and applications that allow users to access, store and interact with data without relying on third-party providers.

Web3 communities are also responsible for providing support, governance and education around the technology, encouraging collaboration between members and ensuring that the technology is accessible and secure.

To outsiders, these explanations of Web3’s importance certainly seem complicated. The complexity associated with Web3 is essentially due to the comprehensive technology, the resulting wide range of possible applications and the community concept. The latter is mainly practiced via the Discord communication platform.

Many see Web3 as the future of the Internet and the next step in the development of the digital world.

The vision of Web3: More security through decentralization of the Internet

The future vision of Web3 is the creation of a decentralized world built not only by technology, but also by people. It is a world in which every participant is their own administrator and creator, in which data and content remain secure and private, and in which real interaction and collaboration can take place.

The decentralization of the Internet, which Web3 aims to realize, offers greater security, integrity and resilience to attacks, as control and responsibility is distributed among many participants and does not lie with a central authority.

Thanks to the distributed architecture, data and functions are not concentrated on central servers, but on many distributed nodes in the network. This reduces critical points of attack and makes the system more resistant to failures or attacks.

In addition, the independence from intermediaries means that services are provided without centralized control or monitoring by third parties. This increases users’ autonomy and control over their data.

Blockchain technology ensures transparency and traceability

Blockchain technology is at the heart of Web3, enabling a transparent and traceable record of all activities in the network. This increases the integrity of the data and makes fraud or unauthorized changes more difficult. Information stored in a blockchain is virtually impossible to manipulate. Each block contains a series of transactions that are considered extremely secure once added to the network.

On the web3, people are harnessing the potential of blockchain and decentralization technologies to find new ways to create, share and manage value. It’s a world where people interact with others, share their ideas, creativity and innovations, contributing to a better, more secure and transparent world.

Cryptocurrency for the digital exchange of assets

The blockchain solves the challenge of establishing a separate economy in this digital world – because here assets can be exchanged using cryptocurrencies such as Bitcoin.

The Web3 also has a solution for financing the development of the virtual, decentralized world, namely through the establishment of DAOs – decentralized autonomous organizations. They sell NFTs (non-fungible tokens) to finance development.

Tokenization with NFT (Non-Fungible Token)

In contrast to coins (e.g. ether or Bitcoin – the fungible tokens), non-fungible tokens, or NFTs for short, are non-exchangeable assets. They form digital certificates that are unique and cannot be replaced. NFTs can be used to create and authenticate ownership of a wide range of digital assets. However, NFTs can not only refer to assets, but also perform actions.

NFTs play an important role in the vision of Web3 because they enable digital ownership and digital tradability away from centralized platforms. NFTs offer great functional diversity and thus enable numerous new business models. They are also the “hobbyhorse” of ACCONSIS.

What types of NFTs are there?

NFTs differ in terms of their properties and applications.

Some of the most common NFT types are:

Utility tokens, currency tokens or security tokens – everything is currently on the market and nobody knows exactly what will remain. But one thing is certain: the use of NFTs offers companies numerous new revenue opportunities and business models – and these must of course also be considered from a tax perspective.

Taxes on crypto and other digital assets

Taxes in the blockchain environment are a very complex topic. As the technology is new, there are still no clear and uniform rules. The existing tax regulations need to be transferred to the blockchain world. It is up to the respective countries to enact their own tax laws and guidelines to ensure that all transactions are properly taxed. Some countries have already started to issue such tax guidelines. However, there is still a lot of work to be done to ensure that all transactions carried out with blockchain technology are properly taxed.

So far, there are no legal adjustments on the subject of taxes on crypto or NFTs in Germany. Tax law guidelines from the Ministry of Finance, on the other hand, do. However, these have so far been very rudimentary.

This means that German tax law from the pre-blockchain era is currently applicable. This opens up possibilities for interpretation – but at the same time it also means remaining tax uncertainty.

For providers and users of blockchain alike, it means that legal and tax rules already in force today must be complied with. When it comes to blockchain tax advice, we are therefore confronted with many different issues:

Blockchain tax advice: Challenges for companies when using blockchain technologies

Assets are increasingly shifting into crypto assets and crypto securities. This topic is also becoming increasingly important for companies, which in turn requires a closer look at the accounting and VAT valuation of crypto assets.

Let’s take the example of crypto art assets. These must be capitalized as a positive asset in the tax balance sheet, as they are associated with ownership rights to a digital file. However, their tax accounting assessment becomes far more complex with regard to details such as

Allocation to necessary business assets and discretionary business assets

Allocation to depreciable fixed assets

Issues relating to depreciation, e.g. in the course of any impairments that may occur

Here and in many other tax accounting considerations, there is currently still a lack of empirical values, which in turn brings with it considerable room for maneuver.

Blockchain technology has also brought with it numerous new business models, but has also transformed old business models into the blockchain. Many start-ups are working on this, for example:

• Validation of transactions through staking pools
• Loan structuring in the crypto environment
• Creation and trading of NFTs, e.g. in the art market
• factoring
• Use of NFTs as a marketing tool
• Using the metaverse as a new space to bring products and services closer to customers

All business models on the Web3 must be put to the test with regard to VAT, e.g. with regard to entrepreneurial status, place of performance, applicable tax rate and input tax deduction. This naturally gives rise to numerous questions in tax practice, of which the above (questions from companies that we support with their market entry into the Web3) only represent a very small part.

VAT law in its analogous form therefore often reaches its limits when it comes to the business models of the Web3. The regulations simply cannot be applied 1:1 to the special characteristics of entrepreneurial activities with digital assets. The BMF has not yet taken a position on the VAT treatment of most Web3 revenue sources, which is why it is not possible to make a reliable assessment under VAT law.

The result: a great deal of legal uncertainty overall and correspondingly increased challenges with regard to VAT classification and accounting. Every entrepreneurial activity on the web3 must therefore be considered on a case-by-case basis with regard to tax aspects.

ACCONSIS can help you with this because we have the necessary Web3 expertise: with our blockchain tax advice, you can make the most of the potential of Web3 while keeping an eye on the economic and legal implications.

Taxes on cryptocurrencies, NFTs and other trades in the blockchain – what do I need to consider?

In the case of familiar investments such as shares, fund units, etc., investors do not have to worry about tax matters, as the banks independently pay the withholding tax to the tax office by offsetting gains and losses (provided the transaction is domestic).

The situation is completely different with cryptocurrencies (Bitcoin, Ether, Ripple, etc.), especially as they are traded decentrally on the blockchain. Although they are only treated as foreign currency or as a capital investment in a few cases, transactions in connection with cryptocurrencies can still be relevant under tax law.

These are the most important points to bear in mind when paying tax on cryptocurrencies:

• Trading in cryptocurrencies and NFTs is regularly treated as a private sale transaction for tax purposes
• Speculative gains generally only have to be taxed within one year
• Exchange transactions (fiat for crypto, crypto for NFT, NFT for NFT) are treated as a sale or acquisition and are taxable if the one-year period since acquisition has not elapsed
• Acquisition and sale transactions must be documented in detail
• Obligations for dealers: choice between FIFO and average methods for tax calculation

Tax consultants for blockchain: professional advice on cryptocurrency and digital assets

Being legally compliant in the virtual spaces of the web3 is associated with numerous challenges. The current regulations often lag behind the development of digital business models and trading with crypto, NFTs and other digital assets.

This makes Web3 very complex and complicated from a tax law perspective, but does not exempt it from tax law obligations.

This is where we come in: ACCONSIS offers you blockchain tax advice for companies and private individuals. We can help you with all questions relating to the tax treatment of cryptocurrencies, NFTs, etc. in private and business assets.

Client information with the most important answers on crypto and taxes

We can help you with all questions relating to the tax treatment of cryptocurrencies in private and business assets.

We have compiled a summary with the most important answers to questions such as:

• What are cryptocurrencies?
• What are the most common forms of investment?
• What are cryptocurrencies considered to be for tax purposes?
• How are cryptocurrencies taxable as private assets?
• How do I document crypto transactions as private assets?
• How are cryptocurrencies taxable as business assets?
• What should I bear in mind with regard to inheritance and gift tax on crypto assets?

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