The following article was written by Magnus Berchtold, the CFO and Co-Founder of CryptoTax. CryptoTax specializes in providing tax and legal tips and Clues around crypto-currencies and blockchain-based Assets. In addition, the company has developed a tax reporting program to make it for crypto investors easier, taxes, specify in relation to Bitcoin & Co correctly.
The enormous fluctuations in the value of cryptographic assets such as Bitcoin have made lately for high profits or losses on the part of private investors. In this context, the question is, can you explain how the taxman of your profits for tax purposes-a lot of crypto-investors, and whether they are obliged to do so at all.
An obligation to submit a tax Declaration regularly, inter alia, if the Investor’s assets in addition to income from capital and employment – which are subject to withholding tax – other income. In contrast to the returns from the conventional financial sector, such as interest or dividends, at which German banks and Broker the tax directly calculate and remit profits out of the blockchain-based Assets, thus, independently of the tax return. Although in Germany there are no explicit laws for crypto currencies, is the existing tax law, will be able to capture all the possible returns, and for tax purposes to be classified.
In the case of incomplete information-sensitive consequences
The Incorrect or non – disclosure of profits, consequently, leads to a tax reduction or tax evasion. According to current case law, a very serious case of tax evasion is already a Tax in the amount of 50,000 euros. The law enforcement period of time and the Fixing time limit of five or ten years holds for the Taxpayer in addition to the risk to be within a very long period afterwards for Offences prosecuted.
For this reason, it is of high importance to explain crypto profits to the tax authorities. Of course, every Taxpayer to represent arguments of a legal opinion to the various output forms of blockchain-based Assets. Essential the origin and composition of the gains, however, is transparent, complete, and clean the respective local tax office documented. Because only a complete disclosure of all facts is suitable to control legal risks met to exclude.
The obligation to submit a tax Declaration is subject to certain time limits. The deadline for the tax period in 2017 terminates on 31.05.2018. This may, however, be an indication of a statement of reasons extended. If the Declaration is created with the help of a tax Advisor, the deadline is extended to the 31.12.2018.
Classification of blockchain-based assets in the existing tax law
Based on various response letter from the Ministry of Finance, the current Status quo is that all blockchain-based assets constitute a tax-private economic goods, and thus in contrast to conventional financial investment not subject to capital gains tax. A tax coverage of sale and exchange transactions are a flat rate of only under Section 23 of the income tax act (EStG) as a private sale transactions (PVG) in question. This view has been unanimously confirmed by detailed discussions of the literature. Accordingly, there is currently at least for trading crypto clarity about the tax consequences of, their basic principles are to be discussed in the Following currencies.
As the above remarks show, the control and consequences. the applicable where the regulations in Detail, depending on the tax classification of the investment object. Since crypto-assets can no of the taxation offences of the conventional financial instruments of the relevant § implement 20 of the income tax act, subsuming as private economic goods under the subsidiary section 23 of the income tax act. If you look in the law, it is striking, however, that objects of everyday use can not lead to taxable transactions. Everyday objects are so defined that they have no potential for increasing in value, and thus usually more cost-effective to be sold as. This is in particular prevented that private users are continually generating losses, which could be set off against gains. Since crypto-currencies, because of the increase in the value of potential a popular asset class, and not by economic erosion-induced loss in value are subject to, resigns from a classification as an object of everyday use on a regular basis.
Consequently, sale transactions of crypto currencies can lead to a taxable profit. Here is an exchange between crypto-currencies, or other private economic goods of a sale.
Follow from the classification of the crypto-Trading as a private sale transactions
To understand the tax classification behind the taxation regime of § 23 of the income tax act, there needs to be a short Overview of the relevant regulations. A PVG can only occur when the holding time is between the acquisition process and the sale less than a year (so-called speculation period). This time limit is exceeded, you can achieve any gains tax-free. It was to be noted in the context of the holding period, but also that you can offset losses from PVG only against profits, if you realized this within a year. Losses, which are incurred only after Exceeding of the speculation period, can be systematically not taken into account. An early realization of losses can be, in individual cases, a tax advantage.
In addition to the holding period, the legislature granted an exemption of 600 euros per calendar year. To note here is that it is a free amount as the savings lump sum in the case of capital income, i.e. the income within the meaning of § 23 of the income tax act greater than or equal to 600 euros, all income, well below the free threshold, tax. In the case of jointly assessed spouses, the exemption limit is available to each only for the own income. A surviving spouse, cross-netting of gains and losses is, however, possible.
Are generated in a calendar year within the § 23 of the income tax act, losses can be offset only with profits from private sale transactions. A settlement with other types of income, e.g. rental income or income from trade or business etc. is not possible. Losses, however, can Abs within the § 23 EStG according to § 10d. 1 sentence 5 of the income tax act in time, or back be worn, i.e., losses may reduce historic and future profits. For a limited time, the so-called Loss carry-back on the previous year. A loss carryforward is subject to no time limitation and you can use it unlimited in the future.
With these bases of taxation, from PVG, you can answer most of the questions for the taxation of crypto currencies. In summary, the following transactions can cause taxable operations:
The exchange of
- the legal currency in Coin
- Coin in Coin
- Coin in service
- Coin in asset
- Coin in lawful currency
Outlook: tax-special in the coming crypto compass of BTC-ECHO
In this article, topics such as Airdrops, Forks, income from Proof-of-Stake and other critical property remain special open behavior such as the use of crypto assets as a means of payment. Detail questions arise as to the determination of the capital gain, on the application of the consumption order as well as evaluation of market prices. For these issues reference is made to the tax specialist in the coming crypto compass of BTC-ECHO.
Disclaimer: The information contained in this article is for General information purposes and do not relate to the specific Situation of an individual or a legal Person. They do not represent business, legal or tax advice. In the specific case of these contents cannot replace individual advice by an expert.