Profits from the sale of cryptocurrencies like Bitcoin are taxable. This was decided by the Federal Finance Court in a ruling on February 14, 2023 (Az. IX R 3/22).
Cryptocurrencies have been subject to significant price fluctuations in the past. Anyone who bought virtual currencies like Bitcoin at the right time and sold them again could achieve substantial profits. It was unclear how speculative profits from cryptocurrencies were taxed. The Federal Finance Court has provided clarity in tax law with its recent decision. According to this, profits from trading cryptocurrencies within the one-year speculation period are subject to income tax, explains the business law firm MTR Legal Rechtsanwälte, which specializes in tax law.
In the underlying case, the plaintiff had exchanged his Bitcoin in 2017 for the cryptocurrencies Etherum and Monero and subsequently partially exchanged them back. All within one year. In the end, there was a profit of around 3.4 million euros, which the plaintiff duly reported to the tax office. When the tax office then imposed around 1.4 million in income tax, the investor filed a lawsuit against it.
He argued that cryptocurrencies only exist virtually and are intangible. Therefore, they should not be considered as ‘other assets’ subject to taxation. Additionally, there is a structural deficit in the enforcement of tax on profits from the sale of cryptocurrencies.
As in the first instance, he did not succeed with this argument in the appeal process. The Federal Finance Court confirmed the decision of the Cologne Finance Court. Accordingly, virtual cryptocurrencies are considered ‘other assets’ within the meaning of § 23 paragraph 1 No. 2 EStG and are subject to income tax as private sales transactions.
The term ‘asset’ is to be interpreted broadly, and technical details of virtual currencies are not relevant to their status as an asset, according to the BFH. Rather, it is sufficient that cryptocurrencies are traded on platforms and exchanges and have their own market value. Furthermore, they can also be directly used as a means of payment. As ‘other assets,’ they are therefore subject to profit tax if exchanged or sold within a one-year period, the BFH clarified. There are also extensive disclosure obligations and monitoring possibilities, so that no structural deficit in enforcement exists.
Experienced tax law attorneys advise at MTR Legal Rechtsanwälte.
