Tax evasion in trading with cryptocurrencies

Cryp­to­cur­ren­cies have been enjoying incre­asing popu­la­rity for years. This is not only because they enable a higher degree of anony­mity in busi­ness tran­sac­tions, but also because considerable profits can be made by buying and selling Bitcoin, Ripple, Monero, Ether, etc.

Initi­ally, neither indi­vi­duals trading in cryp­to­cur­ren­cies nor the tax autho­ri­ties gave much thought to the taxa­tion of cryp­to­cur­ren­cies because the legal situa­tion was unclear and the crypto market was not very trans­pa­rent, but trading in cryp­to­cur­ren­cies is now frequently the focus of audits by the tax autho­ri­ties.

The taxa­tion of cryp­to­cur­ren­cies is not expli­citly regu­lated by law in Germany. The general tax regu­la­tions ther­e­fore apply, although these are not always clear and unpro­ble­matic due to the novelty of these assets (Bitcoin, Ether, Polygon, Solana, etc.).

With regard to the rele­vant type of tax, it is rele­vant whether the cryp­to­cur­rency is held as private or busi­ness assets.

If the cryp­to­cur­ren­cies are held as private assets, the resul­ting gains from the sale within the one-year specu­la­tion period are taxable as income from private sales tran­sac­tions of “other assets” in accordance with Section 23 22 no. 2, 23 para. 1 no. EStG. This is subject to an exemp­tion limit of EUR 600 per year, up to which all sales tran­sac­tions in the assess­ment period remain tax-free. The profits gene­rated are not subject to capital gains tax.

If cryp­to­cur­ren­cies are held as busi­ness assets, i.e. trading in the cryp­to­cur­rency is carried out commer­ci­ally, this acti­vity is always subject to income or corpo­ra­tion tax and trade tax. The profit realised results from the diffe­rence between the purchase price and the sale price. With regard to trade tax, Section 11 (1) sentence 3 no. 1 GewStG provides for an allo­wance of EUR 24,500.

Failure to declare profits from cryp­to­cur­rency trading can have conse­quences not only under tax law but also under criminal law.

If profits from cryp­to­cur­rency trading that exceed the annual exemp­tion limit are concealed, incor­rectly or incom­ple­tely declared in the tax return, this consti­tutes tax evasion in accordance with Section 370 (1) AO.

In subjec­tive terms, it is suffi­cient for criminal liabi­lity that the taxpayer considers it possible that these profits are taxable. Only if the taxpayer has merely acted reck­lessly is the beha­viour not punis­hable, but is punished as an admi­nis­tra­tive offence.

A convic­tion for tax evasion can have considerable conse­quences. On the one hand, depen­ding on the amount of tax evaded, a fine or prison sentence of up to ten years may be imposed. Secondly, in addi­tion to repay­ment of the evaded taxes, inte­rest and late payment penal­ties must also be paid.

If a tax return is submitted in disre­gard of the profits from crypto tran­sac­tions to be declared, it is possible to make a volun­tary disclo­sure with exemp­tion from punish­ment. This has the effect of exemp­ting from punish­ment if it is received by the tax autho­ri­ties before the tax return is processed and contains all missing infor­ma­tion in full.