What tax consequences do crypto investors have to draw from the BMF letter on virtual currencies and tokens for the past?
This article first appeared in the August issue of our magazine Kryptokompass.
In mid-June, the Federal Ministry of Finance (BMF) published a long-awaited draft of a letter on “Individual issues relating to the income tax treatment of virtual currencies and tokens”. The draft upset the crypto space within a short period of time. The starting point: To this day, fundamental questions about the taxation of crypto currencies and assets have not been clarified. Not even whether, for example, profits from trading Bitcoin can be taxed.
The tax authorities apparently intend to tax cryptocurrencies comprehensively. Interest groups had the opportunity to comment until mid-July. It remains to be seen whether their critical objections will be taken into account.
Should the letter become a reality, it only binds the tax authorities, not taxpayers, public prosecutors or courts. Specialized tax prosecutor’s offices (so-called fine and criminal cases), which, unlike “ordinary” prosecutors, are integrated into the system of the tax authorities, will, however, orient their views on this. That would be a wake-up call under tax law.
Light and shadow of a BMF letter on crypto taxation
While individual tax offices are halfway up to date with Bitcoin and Co., others have only just discovered this “tax country”. Knowledge of these phenomena is like a patchwork quilt – with considerable gaps. The fact that the tax authorities want to create a uniform administrative basis is to be welcomed. For the first time, crypto investors had a uniform fixed point at which they could work off and, if necessary, take them to the financial courts. However, the professional fiscal interpretations of the BMF will also generate uncertainties at the latest when they are published:
This affects, among others, investors who in the past treated capital gains from staking or lending outside the holding period of one year as tax-free and did not disclose them in their tax return.
Another problem would be with hard forks, for example, splitting off a crypto currency such as Bitcoin Cash. The BMF assumes an acquisition here – the consequence: The sale of the coin resulting from the fork would be subject to taxation.
Retroactive correction of “incorrect” tax returns?
Would these interpretations by the BMF only be relevant for tax returns to be submitted or also for the past? It is very likely that the tax authorities will only see the confirmation of an existing legal situation. Or to put it another way: Why should the tax authorities forego additional taxes? Another question is whether such a “retroactive effect” would be legally valid. Because laws dictate what should or should not be done, not the tax authorities.
If past tax returns were not corrected, contrary to the opinion of the Federal Ministry of Finance, the criminal affairs departments of the tax authorities could see them as a starting point for tax evasion through omission. The tax code requires taxpayers to report tax-relevant errors in declarations immediately and to correct them within a reasonable period if they recognize them before the tax assessment period has expired. If this was not done, a voluntary disclosure under tax criminal law would be a possible way out. It’s not that simple, but it can be solved.
A BMF letter would be a step towards uniform practice by the tax offices. The current draft leaves numerous questions unanswered and gives professional opinions that may need to be clarified in court. Crypto investors should use the discussion as an opportunity to review transactions with cryptocurrencies – especially if profits are treated as tax-free and are therefore not reported in the tax return.
Martin Figatowski, LL.M. and Thorsten Franke-Roericht, LL.M. are tax attorneys in Bonn / Düsseldorf. Together they founded the “Alliance Crypto Crime Defense”: a cooperation in the field of crypto criminal law and cryptocompliance. You are one of the few lawyers in Germany who specialize in these areas.