Tax treatment of Bitcoin & Co.

Transactions and speculation with virtual currencies also have tax consequences, which the German Federal Ministry of Finance has now commented on.

Last year, the exchange rates for Bitcoin and other cryptocurrencies continued to soar, which attracted even more speculators and caused the prices to rise further. Although the Bitcoin hype has faded somewhat after several, in some cases significant, price corrections, virtual currencies have now gained a firm place in people's consciousness thanks to the many media reports.

The fact that cryptocurrencies have become part of everyday life is proven above all by the fact that the tax authorities are now also interested in everything to do with Bitcoin & Co. In certain cases, the tax office is holding out its hand with regard to both income and sales tax. The German Federal Ministry of Finance has answered the question of what exactly needs to be taken into account.

Although the ministry explicitly refers to Bitcoins, it says that other virtual currencies will also be treated the same as legal tender. This applies at least if these currencies have been accepted by the parties involved as an alternative means of payment and do not serve any purpose other than use as a means of payment. However, virtual play money (in-game currencies, especially in online games) is excluded, as this is not a means of payment in the fiscal sense.

• Exchange: According to a ruling by the European Court of Justice, the exchange of conventional currencies for bitcoin and vice versa is exempt from VAT. For income tax purposes, on the other hand, the exchange is considered a private disposal transaction, where exchange gains are taxable if the re-exchange takes place within the speculation period of one year. In return, losses can be offset against gains from other private disposal transactions. Offsetting against losses from other capital investments, on the other hand, is not possible.

• Payment: The use of Bitcoin is equated with conventional means of payment for VAT purposes insofar as it does not serve any purpose other than that of a pure means of payment. The issuance of Bitcoin for the mere payment of consideration is therefore not subject to VAT. In the case of payment with Bitcoin, the consideration for the service provider is generally determined by the current equivalent value of the Bitcoin in the currency of the Member State in which the service is performed.

• Mining: Mining new Bitcoins is not subject to sales tax. This applies both to the creation of new Bitcoins and to any transaction fee that the miner receives. Anyone who only occasionally participates in mining can treat the income as income from other services, which is only subject to income tax if the amount exceeds 256 euros in a calendar year. Otherwise, however, mining is a commercial activity that is fully liable to income tax, provided that the permanent establishment, i.e. the place where the mining takes place, is located in Germany. The costs for mining the Bitcoins are deductible as business expenses.

• Platforms: If fees are charged by the provider of a platform (wallet, exchange) necessary for transactions with Bitcoin, these are subject to VAT.