Taxation of profits from cryptocurrency trading and criminal tax law in Germany: what you should know
Trading cryptocurrencies such as Bitcoin, Ethereum and others has increased significantly in recent years. For many traders, there is no connection between the issues of cryptocurrency and tax evasion. However, with the rise in popularity of cryptocurrencies, the question of taxation of profits from cryptocurrency trading arises. In this blog article, we will give you an overview of the taxation of profits from cryptocurrency trading in Germany and highlight the possible consequences of violating criminal tax law.
Why can cryptocurrency trading lead to tax evasion?
The German Federal Fiscal Court (Bundesfinanzhof – BFH) confirmed in its ruling of February 14, 2023 (IX R 3/22), referring to Section 23(1) Sentence 1 No. 2 of the German Income Tax Act (Einkommensteuergesetz – EStG), that gains on the sale of cryptocurrencies are taxable, if a swap and/or sale takes place within one year since the acquisition of the coin. The ruling comes as no surprise. If gains are not declared in the tax return, this may lead to the initiation of criminal proceedings for tax evasion.
Taxation of cryptocurrency gains
According to the current tax legislation in Germany, profits from cryptocurrency trading are considered private sales transactions. This means that profits made within one year can be subject to income tax. If you hold your cryptocurrencies for more than one year, profits may be tax-free. However, it is important to note that these rules may depend on various factors such as the individual tax rate and the type of cryptocurrency asset.
Tax documentation and records
To ensure proper taxation of your cryptocurrency gains, it is important to keep accurate records of your transactions. Keep information such as purchase and sale dates, transaction amounts, trading platforms, and wallet addresses for future reference. These records will serve as evidence for your tax return and may be useful in any tax audits.
Fiscal treatment of cryptocurrency gains
The fiscal treatment of cryptocurrency gains can be complex, especially if you exchange one cryptocurrency for another. It is important to be aware of tax regulations and current guidelines. If you have questions regarding the fiscal treatment of cryptocurrency gains, it is advisable to consult a tax advisor or cryptocurrency taxation professional to ensure you comply with all legal requirements.
Criminal tax law consequences
Failure to comply with fiscal obligations related to cryptocurrency gains can have serious consequences. German criminal tax law provides for penalties such as fines and, in the worst case, even imprisonment. It is therefore advisable to comply with the applicable tax laws and to seek advice timely from a tax expert in case of uncertainty. Voluntary self-disclosure in the case of violations of criminal tax law may, under certain circumstances, be a way to avoid or reduce criminal consequences.
Current developments and outlook
The taxation of cryptocurrencies is an evolving field, and tax regulations may change in the future. It is important to stay up to date and regularly learn about any new guidelines or changes in the law. Official publications from the Federal Ministry of Finance or circulars from the tax office are good sources of information.
The taxation of profits from cryptocurrency trading is an important aspect that cryptocurrency investors in Germany should pay attention to. Proper documentation, knowledge of current tax regulations and, if necessary, working with a tax expert can help you correctly tax your cryptocurrency gains and avoid potential criminal tax law consequences. Keep an eye on developments in this field to stay up to date. Cryptocurrency trading and tax evasion do not necessarily have to coincide. Contact us at an early stage so that we can help you avoid criminal proceedings.
