Digital currencies like Bitcoin only exist as data sets in virtual space. But they are traded on platforms and the profits are real too. The result: the tax office is allowed to collect very real taxes from crypto speculators, according to the Federal Fiscal Court.
Capital gains that a taxpayer generates within a year from the sale or exchange of cryptocurrencies such as Bitcoin, Ethereum and Monero are taxed as a private sale transaction. This was decided by the Federal Fiscal Court (BFH, Az.: IX R 3/22).
As a result, an unnamed plaintiff was shipwrecked before the Federal Fiscal Court, who had defended himself against the taxation of 3.4 million euros in crypto profit. Because even if cryptocurrencies only exist in the digital space, they are still an asset for which taxes are due, the court found.
“This is the first supreme court decision on the subject of cryptocurrencies,” said judge Nils Trossen at the BFH’s annual press conference in Munich.
How was the case?
The man from North Rhine-Westphalia had done a very good deal: in 2014 he bought 24 bitcoin for 22,585 euros, after swapping and swapping back with the two other cryptocurrencies Ethereum and Monero, he finally sold his Bitcoin depot in November and December over the course of 2017 the same year, with an incredible profit of 3.4 million euros. According to the BFH, a single bitcoin was worth 11,610 euros at the end of 2017.
After the tax office had assessed income tax of 1.4 million euros, the man went to court. “The plaintiff’s reasoning was that cryptocurrencies are nothing tangible, nothing actual, and therefore not commodities,” said Judge Nils Trossen. The plaintiff’s second argument: Because crypto-investors presumably often hide their profits, but the tax authorities are supposed to collect taxes fairly and evenly, he complained about a “structural implementation deficit” in the financial administration. That should have led to a tax exemption.
The reasoning
But the man had already lost in the first instance before the Cologne Finance Court, and the IX. Senate of the BFH did not follow this. “There are a multitude of economic goods that cannot be grasped,” said Trossen. According to the judge, this also includes, for example, the value of a company or a customer base. the ninth The Senate also saw no structural implementation deficit. Bitcoin and other cryptocurrencies are “essentially objects of speculation,” Trossen said. The man might just have had to be more patient.
The BFH counts cryptocurrencies among the “other economic goods”, just like gold. If you sell at a profit in a private sale transaction within a speculative period of one year, you have to pay taxes, after that no more. Apart from that, after wild fluctuations, the Bitcoin price had risen to an all-time high of over $60,000 by 2021.
The judges assume that further Bitcoin proceedings will reach the Federal Fiscal Court in the next few years if disappointed crypto investors want to offset price losses against taxes. “Of course that will be an issue for the future,” said Trossen. Ultimately, Bitcoin is an object of speculation. “Of course, the question arises: If losses are incurred with an object that is created in order to speculate with it – whether the general public has to share in these losses.”
The plaintiff is one of those taxpayers who fail before the Federal Fiscal Court. Statistically, however, the chances of success in appeals against the tax office are not bad: In 45 percent of the cases, the taxpayer wins, as BFH President Hans-Josef Thesling reported. The BFH itself has also become more digital: According to Thesling, the conversion to electronic court files and electronic legal transactions has been successfully completed.
