Profits from the sale of cryptocurrencies like Bitcoin are taxable. This was determined by the Federal Fiscal Court with a ruling from February 14, 2023 (Case No. IX R 3/22).
In the past, cryptocurrencies were subject to significant price fluctuations. Those who acquired virtual currencies like Bitcoin at the right time and sold them again could achieve significant profits. It was unclear how speculative profits from cryptocurrencies should be taxed. The Federal Fiscal Court has provided clarity in tax law with its current decision. Accordingly, profits from trading cryptocurrencies within the one-year speculation period are subject to income tax, explains the commercial law firm MTR Legal Rechtsanwälte, which has a focus on tax law in its advisory services.
In the underlying case, the plaintiff exchanged his Bitcoin for the cryptocurrencies Ethereum and Monero in 2017, partially exchanging them back again. All within one year. In the end, there was a profit of around 3.4 million euros, which the plaintiff declared correctly to the tax office. When the tax office subsequently assessed about 1.4 million euros in income tax, the investor filed a lawsuit against it.
He argued that cryptocurrencies only exist virtually and are intangible. Therefore, they are not other ‘economic goods’ subject to taxation. Additionally, there is a structural enforcement deficit in taxing profits from the sale of cryptocurrencies.
As in the first instance, he did not succeed with this argument in the appeal procedure. The Federal Fiscal Court confirmed the decision of the Cologne Fiscal Court. According to the ruling, virtual cryptocurrencies are ‘other economic goods’ within the meaning of § 23 para. 1 no. 2 of the Income Tax Act and as private sales transactions, they are subject to income tax.
The concept of economic goods should be interpreted broadly, and technical details of virtual currencies are not relevant to their nature as economic goods, stated the Federal Fiscal Court. It is sufficient that cryptocurrencies are traded on platforms and exchanges and have their own market value. Moreover, they can also be used directly as a means of payment. As ‘other economic goods,’ they are therefore subject to a profit tax if exchanged or sold within the one-year period, the Federal Fiscal Court emphasized. There are also extensive information obligations and control possibilities, so that no structural enforcement deficit exists.
Lawyers experienced in tax law provide advice at MTR Legal Rechtsanwälte.
