A plaintiff unsuccessfully argued in Germany’s highest financial court that his crypto gains worth $3.6 million were not taxable. The court ruled against the complainant’s reasonings that the gains constituted a “data set” and that there are issues with its constitutionality.
In a recent case, Germany’s Federal Fiscal Court (BFH) denied a crypto owner’s attempt to have his $3.6 million crypto gains to be classified as a “data set” and to have the taxation of cryptos declared as unconstitutional. The ruling made by the court on February 18 provides a crucial jurisprudence with regard to the treatment of Bitcoin and other crypto gains going forward.
The plaintiff in this case, an unnamed individual from Cologne, claimed that there was a mistake when the tax office classified his crypto gains as taxable income. The individual contended that since they are merely records, they should not fall within the ambit of “commercial assets”, which are subject to income tax.
In addition, the plaintiff claimed that the existing taxation measures in the country are unfeasible. This is because the reporting of crypto gains will likely be done only by honest taxpayers, hence, they paint themselves as an unconstitutional “dumb tax”.
The lawsuit was initially dismissed by the Cologne Finance Court in 2021. However, there were questions raised by the Nuremberg Finance Court as to whether or not profits from speculative transactions involving virtual currencies should be taxed. In the end, the issues didn’t hold weight on the BFH decision hammered last Tuesday.
BFH ruled that crypto profits can be interpreted as “other economic goods” in the context provided by the income tax law in Germany. So, if they are to be bought and sold within a year and the investor earns from the transaction, they are covered by income tax liability for private sales transactions. The decision of the high court is in line with the legal opinion of the Federal Government issued in May 2022 anchored on the tax treatment of Bitcoin and other cryptos.
Bitcoin and Ethereum are now considered as alternative means of payment and are actively traded on different platforms and exchanges. Thus, these are indications that they possess market value and can be utilized to settle transactions between parties according to BFH.
On the other hand, the high court explained that there are no structural deficits in the enforcement of the law regarding the taxation of crypto assets. The collection regulations as well as the enforcement of authorities are deemed adequate, so they are no issues with its constitutionality.
Tax revenues derived by the Treasury from crypto transactions are not clear though. In the statement of the ministry’s representative with FAZ, statistical figures pertaining to this subject are not available because income tax is merely calculated based on the total amount of income and not assigned to individual assets.
As the cryptocurrency industry continues to grow and evolve, it is likely that more cases related to this may be raised in the future. As courts and lawmakers struggle to keep up with this new asset class, the recent jurisprudence of BFH may serve as a good blueprint for their handling along the way.
The case highlights how cryptocurrencies should be classified. The court’s decision to deny the plaintiff’s claim shows that cryptocurrencies do not fall neatly into traditional legal frameworks yet and that there is still much work to be done to establish clear rules and regulations around these digital assets.
Giancarlo is an economist by profession with a career spanning nearly two decades. His professional journey has seen him assume vital roles in various government and private organizations such as the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), Megaworld Corporation, and the China Banking Corporation in the Republic of the Philippines.
In addition to his civic and corporate pursuits, his forward-thinking approach has led him to manage several prominent websites in the banking and finance sector, notably the Australia-based RateChoice, where he immersed himself in the world of emerging financial technologies and where he found particular interest in Bitcoin all the way back to 2013.
Prior to his addition to Blockzeit’s dynamic team, he held an essential role as Project Manager for initiatives encompassing blockchain, stablecoin, mining, special economic zone development, and iGaming. This noteworthy chapter in his career unfolded under the auspices of InPlan Consultancy Services, Inc., the think-tank of IMPERO Consortium Management Corporation headquartered in Manila, Philippines, and Tokyo, Japan. InPlan, led by a distinguished retired Cabinet member of the Philippines, collaborates directly with IMPERO’s core management team, contributing to strategic planning and business development endeavors.