Cryptocurrencies such as Bitcoin, Ether, Litecoin etc. are increasingly influencing business models of companies. Bitcoin Miners Hasrate is well equipped with materials that will further develpe your understanding of the Cryptocurrency legal frame work. These companies also have to deal with taxation. Here you will find an overview of the tax treatment of virtual currencies and tokens. We present the most important points to you.
News: Capital gains on cryptocurrencies are taxable
In a recent judgment of February 14, 2023 (Az: IX R 3/22), the Federal Fiscal Court (BFH) decided that capital gains that a taxpayer could generate within one year from the sale or exchange of virtual currencies (currency tokens, payment tokens) achieved are subject to taxation as a private sale transaction .
In the present case, the taxpayer (plaintiff) had bought, exchanged and resold various cryptocurrencies. In detail, these were transactions with Bitcoins, Ethereum and Monero, which the taxpayer carried out privately. In the year of the dispute, 2017, he made a profit totaling 3.4 million euros. The tax office had subjected the profit from the sale and exchange of cryptocurrencies to income tax.
The BFH has now confirmed this: cryptocurrencies are so-called “other” assets that are subject to taxation as a private sales transaction if they are purchased and sold within one year.
Overview: what is it about?
The market for digital means of payment is growing strongly, albeit with sometimes large fluctuations. Politicians and financial authorities have also taken a look at digital currencies.
Companies that use and work with cryptocurrencies must above all consider possible income tax and sales tax consequences.
The Federal Ministry of Finance (BMF) issued a statement on sales tax in 2018 (letter dated February 27, 2018). According to this – in line with the case law of the European Court of Justice – cryptocurrencies are equated with conventional means of payment for sales tax purposes, insofar as they serve purely as a means of payment.
The income tax classification, on the other hand, has so far been very controversial. In the first supreme court decision of February 14, 2023, the BFH clarified that profits from the sale of cryptocurrencies are taxable under certain conditions. On May 10, 2022, the Federal Ministry of Finance (BMF) published a final letter on the income tax treatment of virtual currencies and tokens. The opinion of the BMF on the income tax treatment of private assets (margin no. 53 et seq.) is now confirmed in this respect by the BFH decision of February 14, 2023.
What are digital or virtual currencies?
- The financial administration describes digital or virtual currencies as digitally represented units of value of currencies that are not issued or guaranteed by any central bank or public body .
- The denominations of virtual currencies can be accepted by natural or legal persons as a means of exchange , even without the legal status of a currency.
- The most well-known virtual currencies include, for example, Bitcoin , Ether, Litecoin and Ripple.
What are tokens?
Tokens are digital units of value that can embody claims or rights. They can serve as payment for services provided in the network or be allocated centrally by a project initiator independently of the provision of computer power. When this happens for the first time, it is called an Initial Coin Offering. Some start-ups use this method to collect capital and thus finance themselves.
Blockchain
Blockchain is an important technology for digitizing the economy and society. It is at the heart of all cryptocurrencies.
- A blockchain is a multi-participant database with no central control that uses distributed ledger technology .
- It is designed so that the inventory is tamper-proof and immutable, only allowing additions.
- In the context of a virtual currency, a blockchain is a decentralized database in which all confirmed transactions are recorded, comparable to a decentralized ledger.
Proof of Work (Mining)
Mining is a process in which computing power is made available for transaction processing (block creation) . Units of virtual currency are allocated to the successful miner who created the block. This process is referred to as mining, based on gold digging.
Wallet
The wallet (translated purse, wallet, purse) is an application for creating, managing and storing private and public keys. In order to carry out a transaction of units of a virtual currency, each user needs a wallet. As a rule, a separate wallet is required for each virtual currency, since the public keys depend on the underlying blockchain.
Initial Coin Offering (ICO)
The term Initial Coin Offering is based on the English term Initial Public Offering (IPO), i.e. IPO. While an IPO involves the sale of shares, an ICO involves issuing tokens in exchange for units of virtual or government currency. As with an IPO, capital is collected with an ICO.
Proof of Stake (Forging)
In contrast to mining, proof of stake is also referred to as forging or minting, i.e. forging or embossing, sometimes also