The following article presents a summary of the development of CryptoTax to the tax treatment of master nodes. It was written by Klaus Himmer, CEO and Co-Founder of CryptoTax. Additional information on the topic can be found at cryptotax.io.
Nodes or node points meet in a decentralized network with many important tasks to ensure the safety and security of the system. Because some crypto-currencies such as Bitcoin, the task of a node without Mining function is not paid for, need to network action participants there, instead of economic incentive to do so out of ideology.
The number of the nodes is not cost – despite ongoing power and opportunity of the Hardware used, to decrease, was launched in the year 2015 by private investors an incentive program. So you wanted to increase the incentive for the operation of a full-fledged, Bitcoin-Blockchain node. The compensation should be paid not by the System, but by donations in the Form of Bitcoin. This incentive experiment was met with little resonance in the Community, and could not prevail.
In contrast, some of the block chain, reward-based Coins, such as DASH or PIVX system controlled specific network nodes, where the master node is called, in order to increase the economic incentive to legitimize transactions and communication between the network participants. Because in the Bitcoin System, for which most of the tax literature, no such compensation is provided, are well-founded statements concerning tax treatment of master nodes that have previously been difficult to. The question of to tax such as the inflow and sale best, a lot of users and tax advisors prior to a challenge. It is also unclear whether the operation of a Masternode is a commercial operation.
Accrual for commercial activity
In the case of income, which can be achieved by Building a Masternode, are Parallel to a Mining activity visible. Since this usually leads to income from trade or business, this could also apply for master nodes.
Of commercial income to go out, would have the positive criteria of § 15 Abs. 2 of the income tax act (EStG) be cumulatively fulfilled:
- Intention to make a profit
- sustainable Operation
- Participation in General economic traffic
In addition, three negative delimitation characteristics exist. These are defined as follows:
- Deferral in relation to the private asset management
- Distinction in comparison to the self-employed work, within the meaning of § 18 EStG
- Deferral in relation to agriculture and forestry within the meaning of section 13 of the income tax act
In summary, it can be noted that the operation of a Masternode – should not qualify if the overall picture of the conditions speaks against it – regularly as a commercial activity.
Since the positive Cash Flows in their property values as a passive source of Income from the surrender of property a characteristic of an output from the system represent existing assets, an income tax are classified as income from capital within the meaning of § 20 EStG, assets close. The classification of the compensation of the master node as a return to capital fails, however, to the legal definitions of taxation offences.
To be classified as other income
There’s no income within the meaning of section 20 of the EStG, only to be classified as other income within the meaning of section 22 of the income tax act in question.
The catch-all provision of § 22 no. 3 EStG includes income from other services in the German tax law. By the principle of subsidiarity is the Norm, however, is only considered if no other type of income of the income tax act is relevant, what should be the case according to the above analysis for Masternode payments.
To clarify whether the operation of a Masternode is a other performance within the meaning of § 22 no. 3 EStG. Such in literature and case law, as each will Do, or Tolerate described that gives rise to a counter-performance. Although from the Taxable except the one-time setup (e.g., DASH 1.000 Coins) no proactive action or is limited to a minimum of maintenance. Nevertheless, he provides, through the operation of the Masternode server features and benefits available to, taken by the participants of the decentralised network and a share of the Block Reward paid.
To see how the broad Definition of “other power”, it is necessary to expressly any ongoing physical or mental action of the Taxpayer, & e. the provision of computing power enough on a regular basis. Against this Background, it is also clear that the source of Income is not due originally to the necessary contribution of assets, but understood rather as compensation for the services of provision of functionality.
Following this analysis, it shows that the original Deposit of the Coins is a barrier to entry, but not the claim to remuneration founded. The consideration the Taxpayer receives for its performance, may consist of money or tangible assets. Thus, the facts of the case should be met characteristics of § 22 no. 3 EStG, u. E. a regular basis and income from other services.
The exemption limit of 256 Euro
If the total income from other services in a calendar year is less than 256 euros, these are tax-free. It should be noted that there is a threshold and not an allowance that, if Exceeded, has the tax liability for the entire income under § 22 no. 3 EStG. Since, according to the prevailing opinion of the currencies of several types of income in the area of Crypto, such as, for example, Proof-of-Stake – under the catch-all provision of § 22 no. 3 EStG is to be subsumed, is to ensure that the exemption limit on the added income from other services.
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. Of business, except goods, which are proven to longer than a year in the possession of the Taxpayer. These can be sold tax-free.
Coins, the Taxpayer receives through the operation of a Masternode, were self-created and, therefore, not a paid process of Acquisition purchased. Since the legal definition of the private sale transaction calls for a process of Acquisition against compensation, should later sales not a private sale transaction, and to treat as tax-neutral.