Dr. Klaus HimmerDr. Florian Lindermann

This blog post is Part II of our series on the newly published BMF circular addressing cryptocurrencies and tax. You can read Part I here.

Revision of the explanatory notes on crypto-related issues

In the new Federal Ministry of Finance circular, the terms “virtual currencies and other tokens” have been replaced by “crypto assets”. Even if the term is borrowed from supervisory law, we believe that, in the absence of a reference to Regulation (EU) 2023/1114 on markets in crypto-assets (MiCAR) or the German Banking Act (Kreditwesengesetz), an independent understanding of the term under tax law should continue to apply. For example, the Federal Ministry of Finance circular rightly continues to deal with ‘security tokens’, which may also fall under the Markets in Financial Instruments Directive (MiFID II) for regulatory purposes and are therefore not considered crypto assets within the meaning of supervisory law.

What’s more, further technical explanatory notes have been added, e.g. on applications of decentralised finance or the claiming of staking rewards, as well as descriptions of tax declaration terms such as ‘transaction overviews’ and ‘tax reports’.

Further content-related revisions

From a legal perspective, the practice-orientated ‘simplification regulations’ in relation to price determination and what’s known as “claiming” are particularly worth mentioning:

  • Price determination: The market price of the acquisition costs and sales proceeds of crypto assets can be the price of an exchange (e.g. Börse Stuttgart Digital Exchange, Kraken, Coinbase and Bitpanda) or listings (e.g. coinmarketcap and coingecko). Furthermore, it is not objectionable if the market price is not based on the time of the transaction, but on a daily price (average daily  price, time-of-day price or daily closing price) determined in accordance with documented specifications.
  • Claiming: Usually “(passive) staking” requires “claiming”: the remuneration that is provided in the system. For reasons of simplification, the Federal Ministry of Finance does not object if the time of acquisition or receipt of the crypto assets received through (passive) staking is assumed to be the time of deposit in the wallet during the year. However, according to the tax authorities, the receipt of unclaimed crypto assets must be taken into account at the end of the financial year/calendar year at the latest. The simplification rule enables taxpayers to actively control the date of receipt during the year and thus the valuation of the staking rewards. However, there are also risks arising from the claiming rule. The tax authorities will regard the simplification rule as an equitable measure, i.e. they will generally assume an inflow at the time when staking rewards can be claimed for the first time. Taxpayers should check whether tax returns have been filed in the past in accordance with other legal opinions (e.g. no ‘claimable’ staking rewards declared, as no claiming has taken place) and whether a disclosure or subsequent declaration is necessary in this respect.

The deletion of the comments on employee participation programmes structured in the form of tokens contained in the original version of the circular appears surprising. Statements on income from employment and wage tax deduction are now explicitly excluded from the scope of application of the Federal Ministry of Finance circular.

(Still) No consideration of special features of non-fungible tokens and liquidity mining

It was also clarified that the revised Federal Ministry of Finance circular still does not contain any specific comments on non-fungible tokens (NFTs) and liquidity mining. According to the Federal Ministry of Finance website, the application circular is to be supplemented on an ongoing basis.

Conclusion

As a consequence of the revised Federal Ministry of Finance circular, crypto investors should document the purchase and sale of crypto assets in a comprehensible manner. For this purpose, the purchase and sales documents must be saved, which is possible via the transaction lists of the accounts or wallets. In specific terms, a report of the transaction data should ideally be downloaded once a month (like a monthly account statement) and also saved on a backup storage medium and – where possible – a real-time connection of trading platforms and wallets should be made in a tax software.

In addition to the documentation requirements for private assets, the extensive documentation obligations of the German General Tax Code (Abgabenordnung) and commercial law requirements (including GoBD) must be observed to the extent that the risk of crypto assets is present in the business assets. The taxpayer should keep comprehensive (tax) balance sheets and maintain the underlying electronic information.

The tax-efficient structuring of investments and constant documentation is essential for the ‘economic’ success of investments in crypto-assets.