Cryptocurrencies and Taxes in Germany

In recent years, cryptocurrencies such as Bitcoin, Ethereum, and Monero have gained significant importance. But how are profits from the sale of cryptocurrencies taxed? And what happens if investors lose their investments on dubious online platforms? This article will shed light on the current legal situation in Germany, the EU, the UK, and the USA.
Profits from Cryptocurrencies: Subject to Income Tax
The Cologne Tax Court ruled in a judgment dated November 25, 2021 (14 K 1178/20) that profits from the sale of cryptocurrencies are subject to income tax. The plaintiff had exchanged Bitcoins for Ethereum units and later for Monero units, then exchanged them back to Bitcoins and sold them. The court found that cryptocurrencies constitute "other economic goods" within the meaning of § 23 Para. 1 No. 2 EStG and that their classification as economic goods does not violate the principle of definiteness.
The Baden-Württemberg Tax Court also ruled in a judgment dated June 11, 2021 (5 K 1996/19) that earnings from the sale of cryptocurrencies constitute other income/income from private sales transactions. The tax office is not obligated to verify in detail the calculation of the sales profits by the taxpayer.
Losses from Dubious Online Platforms: Not Recognized as Negative Income
The Hamburg Ministry of Finance stated in a decree dated February 22, 2022 (S 2256 - 2022/001 - 52) that losses from investments on dubious online platforms cannot be recognized as negative income from private sales transactions. This is because there is no sale of the so-called cryptocurrencies.

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Practical Implications
For cryptocurrency investors, this means they must declare their profits from the sale of cryptocurrencies in their income tax return. It is advisable to document exactly when and at what price the cryptocurrencies were bought and sold to calculate the sales profits correctly.
If investors lose their investments on dubious online platforms, they should report their losses to the competent authorities. However, it is important to note that these losses cannot be recognized as negative income.
Legal Basis
* § 22 No. 2, § 23 Para. 1 Sentence 1 No. 2 EStG (Income Tax Act)
* Judgment of the Cologne Tax Court dated November 25, 2021 (14 K 1178/20)
* Judgment of the Baden-Württemberg Tax Court dated June 11, 2021 (5 K 1996/19)
* Decree of the Hamburg Ministry of Finance dated February 22, 2022 (S 2256 - 2022/001 - 52)
EU, UK, and US Law
* In the EU, the taxation of cryptocurrencies is not yet uniformly regulated. The MiCA Regulation (2024) is set to classify cryptocurrencies as "transferable securities."
* In the UK, HMRC treats cryptocurrencies as taxable property.
* In the USA, the IRS treats cryptocurrencies as assets (Notice 2014-21); fraud losses may be deductible as theft (IRC §165).
Practical Implications and Compliance
For taxpayers trading in cryptocurrencies, these judgments and decrees provide a clear line: profits from private sales transactions, whether through buying and selling or exchanging cryptocurrencies, are generally taxable. Taxpayers must declare their profits from cryptocurrencies in their income tax return according to §§ 22 and 23 EStG. Additionally, they should ensure that their tax return is correct and complete, as the tax office usually does not need to conduct further examinations as long as there are no doubts.
However, taxpayers who suffer losses due to fraud or the use of dubious platforms must be aware that these losses are not recognized for tax purposes. Therefore, it is recommended to be cautious and thorough when selecting trading platforms to avoid such problematic situations.
Conclusion
The tax treatment of cryptocurrencies is complex and is further clarified by various judgments and decrees. Taxpayers should stay informed about current developments in tax law and take their obligations regarding income from cryptocurrency transactions seriously. By adhering to the legal basis and practical implications, taxpayers can ensure they meet their tax obligations and avoid unpleasant surprises.
Sources
* Cologne Tax Court, Judgment dated November 25, 2021 (14 K 1178/20)
* Baden-Württemberg Tax Court, Judgment dated June 11, 2021 (5 K 1996/19)
* Hamburg Ministry of Finance, Decree dated February 22, 2022 (S 2256 - 2022/001 - 52)
* Income Tax Act (EStG)
* MiCA Regulation (2024)
* HMRC Guidelines 2019
* IRS Notice 2014-21
* IRC §165

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