The following article presents a summary of the development of CryptoTax to the economic and tax effects of Hard Forks. It was written by Magnus Berchtold, the CFO and Co-Founder of CryptoTax. Additional information on the topic can be found at cryptotax.io.
By DAO-Hack on Segwit up to Bitcoin Gold Forks play in the Blockchain-the context a large role. It is questionable to expect what are the tax implications for private investors with a Fork.
By definition, the key feature of an Open Source project is the public availability of the source code. This allows, inter alia, the Copy, respectively. “Forking” of the code, in order to expand these, for example, a useful function and in the origin project, or a follow-up project to initiate. Since most of the big block chains to the Open-Source projects, there is also this possibility. This allows the Community to actively participate in the development of the project, participate in, or to start their own project on the (modified) Code-base. The cryptocurrency DASH represents, for example, a Fork of the Bitcoin Blockchain.
In this context, a distinction is made between Soft and Hard Forks. Soft Forks are backwards compatible, i.e. it is not mandatory that all Nodes perform an Update, because the new and old Software can coexist. Hard Forks are only forward compatible. The Blockchain is split at the point of change and two Chains of the same origin. Well-known example for a newly created Coin by a Hard Fork Bitcoin to Cash, which is appeared due to the scaling debate on 01.08.2017 as a new crypto-currency.
Interesting for investors is likely to be, in this context, the tax treatment of the newly created Coins by Hard Forks.
It is questionable whether the creation of new Coins through a Hard Fork is an inheritance and gift tax legal process. In terms of newly created Coins due to Forks, only the a gift inter Vivos, in accordance with § 7 Abs. 1 no. 1 ErbStG in question. For this purpose, an increase in net Assets with a corresponding reduction of Assets in the Donor is associated. As this is not met, you can justify it by a Fork, no gift.
Pronouncements of the Federal Ministry of Finance, and the relevant literature show that crypto-currencies, respectively. private goods are subject to private sale transactions pursuant to section 23 of the income tax act. With the arrangement as private assets taxation of the Forks will be eliminated as a capital gain within the meaning of section 20 of the EStG.
Further taxation as income from other benefits in accordance with § 22 no. 3 EStG is conceivable. An “other power” is in the literature and case law, as each will Do, or Tolerate described, which is based on a counter performance. As for the inflow of new Coins in a Hard Fork, no active action is regularly necessary, are not met, these event conditions on a regular basis.
Since you split the inflow through the cleavage of a Blockchain with a stock or a Spin-Off can compare, is a consideration of the tax treatment of these operations make sense. Depending on the tax and company law structuring the inflow of economic goods, either a distribution in kind or a tax-neutral operation. In the latter case, the original acquisition is the transfer of data (the cost value and the date) on the new pieces and divided (so-called footsteps of theory). As a result, you want to make sure that the fission process uncovers no hidden reserves, and the German taxation law at a later sale.
There’s a Blockchain Fork is regularly not a tax-optimized balance sheet restructuring and a tax deferred to as income from capital assets and the income from other services can be made, justified a Fork regularly no current income. Thus, the inflow of new Coins, such as the receipt of Bitcoin and Cash, values, as a tax-neutral.
A controllability could be within the income sphere, to the flow time excluded gains from the sale of crypto the Forks inflow of currencies could, however, be within the § 23 of the income tax act can be controlled. In this context, the question of which acquisition data will be the spun-off Coins based on. Here, it is important to distinguish whether Forks as a Pro rata sale of the origin of the assets or as tax-neutral split-up operations are to be considered. Economic studies have shown that Hard Forks can have quite an increased potential for success, however, a priori the success of a neutral run, because the available resources are divided at the split. Hard Forks should realize, therefore, no sale of facts which the so-called footsteps theory.
By the footsteps of the theory to transfer the date of Acquisition of origin assets to the new Coins. This is especially in terms of the one-year speculation period of advantage, because you can sell the newly-acquired economic goods, the same time as the original Coins, tax-free.
In terms of the cost of acquisition is carried out in the case of stock splits or Spin-Offs in accordance with the provisions of the Ministry of Finance, a division in accordance with the exchange ratio. This simplification appears in the case of the variety of Forks, usually with an exchange ratio of 1:1, for blockchain-based economy, of goods as only partially practicable. A viable Alternative, the distribution of the common value in accordance with § 9 BewG, respectively. the market value is. For one thing, the market will reflect the most economically viable distribution base values, and on the other Forks were without economic substance of a cost-sharing costs except.
After determination of date of Acquisition and cost the tax assessment can be in the case of a sale of Fork-Coins on the basis of the well-known rules of § 23 of the income tax act.