Voluntary disclosure – Tax authorities have cryptocurrencies in their sights

News  >  Voluntary disclosure – Tax authorities have cryptocurrencies in their sights

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The German tax authorities are taking aim at investors who have traded cryptocurrencies. Those who have not paid the tax due on the profits may still be able to submit a voluntary declaration for tax evasion.

Investors with undeclared profits from trading cryptocurrencies such as Bitcoin and Ethereum are risking trouble with the tax authorities, which routinely look into whether the tax due on the profits has been paid. If this turns out not to be the case, those concerned may be charged with tax evasion. Alternatively, they may be able to get out of this situation by submitting a voluntary declaration, explains commercial law firm MTR Legal Rechtsanwälte.

A report by the German weekly news magazine Der Spiegel from June 9, 2023, sheds lights on the prospect of the tax authorities investigating the users of a large cryptocurrency trading platform, with the regional financial administration for North Rhine-Westphalia having reportedly fought to have the data released. While it is not yet known which trading platform has been targeted, we do know that the Financial Administration of North Rhine-Westphalia has since shared the data with other German states.

Investors who have traded cryptocurrency and failed to declare the profits to the competent tax office should therefore be preparing themselves for investigations to be conducted across the country by the tax authorities of the relevant states.

Profits from cryptocurrency trading need to be independently declared by investors in their tax returns. This is certainly the case if they have arisen within a year of trading cryptocurrencies, i.e., the profits are liable for taxation if the time between the purchase and sale of the cryptocurrency is less than 12 months.

This tax liability has been confirmed by the tax courts for Cologne and Baden-Württemberg (case ref.: 14 K 1178/20 and 5 K 1996/19, respectively).

Failure to disclose the profits to the tax office may constitute tax evasion, with this ultimately leading to severe penalties being imposed. However, those concerned may be able to obtain immunity by submitting a voluntary declaration.

For the declaration to be capable of leading to immunity from punishment, it needs to satisfy a number of criteria. For instance, it needs to be complete and have been submitted in good time, which is to say, before the tax authorities uncover an offense. Given that even minor errors have the potential to render a voluntary declaration ineffective, it is always best to consult with lawyers who are well-versed in tax law.

The team of experts at MTR Legal Rechtsanwälte includes tax specialists who advise on voluntary disclosure.

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