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Tax evasion and cryptocurrencies – immunity through voluntary disclosure

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Impressum-Anwalt-Rechtsanwalt-Kanzlei-MTR Legal Rechtsanwälte
Impressum-Anwalt-Rechtsanwalt-Kanzlei-MTR Legal Rechtsanwälte
Impressum-Anwalt-Rechtsanwalt-Kanzlei-MTR Legal Rechtsanwälte

The tax authorities in the German state of North Rhine-Westphalia are increasingly targeting cryptocurrency investors for possible tax evasion. By submitting a voluntary declaration, it may still be possible for tax dodgers to avoid punishment.

German weekly news magazine Der Spiegel was reporting as far back as June of this year on the North Rhine-Westphalian tax authority analysing a cryptocurrency exchange’s user data with a view to potentially unmasking tax evaders. While the identity of the cryptocurrency platform remained an open question for some time, Handelsblatt has since shed light on the matter. Citing a number of sources behind the tax authority’s targeted investigation, the German business daily revealed in a report from August 1, 2023, that the site under scrutiny is Bitcoin.de. Anyone who has failed to properly disclose profits from trading cryptocurrencies in their tax returns may have committing tax evasion. Fortunately, those concerned still have the option to submit a voluntary declaration that could lead to immunity, notes commercial law firm MTR Legal Rechtsanwälte.

Profits from trading cryptocurrencies are taxable if they were generated within the one-year speculation period. More specifically, as private sales transactions, they are subject to income tax. That was the verdict of Germany’s highest tax court – the Bundesfinanzhof – in a ruling from February 14, 2023 (case ref.: IX R 3/22). It is important to note that unlike in the case of transactions involving securities, where the banks pay the withholding tax directly to the tax authorities, it is taxpayers themselves who are responsible for declaring and paying any profits generated from trading cryptocurrencies. And they cannot rely on their transactions remaining undetected, as the blockchain records a lot of essential information save for the wallet owner’s name.

This data is currently being collated by the tax authorities in the state of North Rhine-Westphalia in the hopes of being able to match cryptocurrency transactions to the relevant names. According to the information provided by Handelsblatt, which has yet to be confirmed by the state tax authorities, the data in question pertains to users who exchanged at least 50,000 euros on the platform Bitcoin.de between the years 2015 and 2017.

It is still possible for tax evaders to submit a voluntary declaration and avoid punishment. For the declaration to be capable of having the intended effect, it must be submitted on time and include any and all information from the last ten years that is relevant from a tax perspective. With even minor errors potentially rendering the voluntary declaration ineffective, it is a good idea to consult with a team of lawyers versed in tax law.

MTR Legal advises on all aspects of voluntary disclosure.

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