Taxability of profits from the sale of various cryptocurrencies under review of the Federal Fiscal Court

For the first time, the Federal Fiscal Court (BFH) had to deal with the taxation of cryptocurrencies (BFH of February 14, 2023 – IX R 3/22). The previous judgment of the Cologne Finance Court (of November 25, 2021 – 14 K 1178/20), according to which profits from the sale of cryptocurrencies are private sales transactions in accordance with Section 23 (1) sentence 1 of the German Income Tax Code (EStG) the BFH has confirmed.

In the underlying facts, the plaintiff had acquired various cryptocurrencies (including Bitcoin, Ethereum, Monero) in several transactions between 2014 and 2017. He made a profit of 3.4 million euros from the sale in 2017 and also declared this in the income tax declaration. The responsible tax office assessed both the profits from the sale of cryptocurrencies for euros and the exchange of cryptocurrencies among themselves as private sales transactions subject to income tax. In the first instance, the Cologne Financial Court followed the opinion of the tax office, whereas the plaintiff filed an appeal because the Financial Court Cologne did not differentiate between the properties of the individual cryptocurrencies. In the current judgment, the BFH has now rejected the appeal as unfounded, since no differentiation is necessary when assessing the economic property of the cryptocurrencies at hand. According to the BFH, cryptocurrencies are “other economic goods”, according to which they qualify as private sales transactions for income tax purposes in accordance with Section 23 (1) sentence 1 no. 2 EStG if they are purchased and resold within one year. It is irrelevant for the qualification whether these are exchanged for other crypto currencies or sold for fiat currencies within the year. What was previously largely a consensus in the tax world has now been clarified by the BFH as a supreme court.

With this first judgement by the BFH on cryptocurrencies, it is now clear that the highest financial court ruling regards cryptocurrencies as economic goods and the sale of these within the one-year period is subject to income tax.

Dominik Becherer | TLI Steuerberater