Profits from trading cryptocurrencies are subject to tax
In its judgment of January 22, 2025, the Nuremberg Fiscal Court made an important decision regarding the tax treatment of cryptocurrencies (Case no. 3 K 760/22). The court clarified that income from trading cryptocurrencies is generally subject to income tax if less than one year elapses between acquisition and disposal. Virtual cryptocurrencies are considered ‘other assets’ within the meaning of Section 23 (1) sentence 1 no. 2 of the German Income Tax Act (EStG), meaning private sales transactions involving them are subject to income tax.
Cryptocurrencies are subject to high price fluctuations. Through skillful trading when buying and selling cryptocurrencies, considerable profits can potentially be achieved. The Federal Fiscal Court had already held in its judgment of February 14, 2023, that such profits are subject to income tax within the one-year speculation period (Case no. IX R 3/22), according to the business law firm MTR Legal Rechtsanwälte, which, among other things, advises on tax law. The Nuremberg Fiscal Court followed this case law.
Tax office does not recognize losses due to lack of proof
In the underlying case, the plaintiff had made a profit of over 100,000 euros from trading several cryptocurrencies. He initially declared this profit in his tax return. Later, however, he claimed that losses had been incurred due to a hacker attack and technical problems, which should be considered to reduce his tax liability.
However, the tax office did not recognize the losses due to lack of proof and determined the income tax accordingly. The plaintiff appealed this tax assessment with his lawsuit. He also maintained that the taxation of cryptocurrencies was unconstitutional. In particular, he argued that cryptocurrencies do not qualify as ‘assets’ within the meaning of the Income Tax Act. Furthermore, he claimed that structural enforcement deficits existed due to the anonymity of cryptocurrencies and the lack of control possibilities.
Cryptocurrencies are ‘other assets’
The Nuremberg Fiscal Court rejected these arguments and confirmed the view of the tax authorities. Cryptocurrencies are to be classified as ‘other assets,’ according to the court. They can be valued independently and can be utilized economically. Thus, they meet the criteria of an asset in the tax sense. The fact that they are virtual assets does not change this, nor does their partial anonymized use.
The plaintiff’s argument that an enforcement deficit exists because the tax authorities are in fact unable to uncover tax-relevant cryptocurrency transactions, resulting in unequal taxation, was dismissed by the Nuremberg Fiscal Court. The tax authorities have various means of control at their disposal. Furthermore, taxpayers are obliged to cooperate in determining their tax bases. This includes the obligation to disclose cryptocurrency transactions. It is not unusual for new types of assets to initially present practical problems in terms of tax collection. However, according to the court, this is not a reason to generally declare taxation unconstitutional.
Appeal to the Federal Fiscal Court allowed
Furthermore, the court clarified that no special new legislation is required for the effective taxation of cryptocurrencies. The existing legal framework is sufficient to capture taxable circumstances. The taxation is in accordance with the constitutional principle of ability to pay. Anyone who makes profits through speculation in cryptocurrencies is generally also able to contribute to the financing of state tasks, the court stated.
The question of constitutionality raised by the plaintiff has not yet been finally decided. The Nuremberg Fiscal Court has therefore expressly permitted an appeal to the Federal Fiscal Court.
Observe speculation period
The judgment is of considerable significance for investors in cryptocurrencies. The Nuremberg Fiscal Court confirmed the legal opinion of the tax authorities that gains from trading cryptocurrencies within the one-year speculation period are subject to tax. Investors who purchase digital currencies and sell them again within a year must declare and pay tax on the profit in their income tax return. They should also carefully document all transactions.
Anyone trading in cryptocurrencies should seek timely tax advice and take the tax consequences into account. This applies in particular to short-term speculation. In this way, unpleasant surprises with the tax office can possibly be avoided. Therefore, tax advice is recommended when trading cryptocurrencies.
MTR Legal Rechtsanwälte advises on tax disputes with the tax authorities and other tax law matters.
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