Cryptocurrencies: Profits from sales are subject to income tax
Have you made profits from the sale of cryptocurrencies? Then you must pay tax on them. In a ruling dated November 25, 2021, published on February 25, the Cologne Fiscal Court ruled that Bitcoin, for example, constitutes "other assets" within the meaning of the Income Tax Act. An appeal to the Federal Fiscal Court is pending.
In the specific case, the plaintiff owned bitcoins he had previously purchased at the beginning of 2017. In January, he first exchanged them for Ethereum units, and only five months later for Monero units. At the end of the same year, he exchanged some of the Monero units back into Bitcoin and sold them again in the same year. The man used two channels via digital trading platforms to carry out the transactions: Firstly, purchase contracts with providers of certain crypto assets or exchange contracts in which his own crypto assets were used. In 2017, the plaintiff earned a total of almost 3.4 million euros from the purchase and exchange transactions.
Plaintiff declares profit as income from private sales transactions
At a later date, the man declared the profit he had made as income from private sales transactions in his 2017 income tax return in accordance with Section 22 no. 2, Section 23 para. 1 sentence 1 no. 2 of the German Income Tax Act. The tax office assessed the income tax as declared, whereupon the plaintiff lodged an objection. He justified this with three main points. Firstly, there was a structural enforcement deficit in the taxation of capital gains on cryptocurrencies. Secondly, there was a breach of the principle of certainty (taxation should not take place in this way) and finally, cryptocurrencies also lacked the required sale of an asset.
Cologne tax court rejects complaint: There is no enforcement deficit
The Cologne Tax Court ultimately dismissed the case. A structural execution deficit did not exist and was not justified by the anonymous sale. On the other hand, the tax court stated that the prerequisite of a private sale transaction was met. Cryptocurrencies are "other assets" within the meaning of Section 23 para. 1 no. 2 EStG. There was no ambiguity regarding the object of the asset, so the qualification as an asset did not violate the principle of certainty. Bitcoin, Ethereum and Monero are all marketable assets and can be valued independently. Structural comparability with foreign currencies is certainly given.
The decision is not yet legally binding. The appeal proceedings are pending before the Federal Fiscal Court under case number IX R 3/22.
