After 13 years: The BMF letter on the taxation of cryptocurrencies is here!

David Hotzel

Lawyer Dr. David Hötzel, LL.M., Counsel at POELLATH, Berlin

On 11 May 2022, BMF issued the long-awaited letter “on income tax treatment of virtual currencies and others tokens“released. Following a draft in June 2021 and a subsequent consultation of various associations in the crypto community, the final letter will now – 13 years after the launch of Bitcoin in 2009 – bring more legal certainty to the taxation of various crypto incomes (for the uncertain legal situation so far, see last Wintermeier, HB Steuerboard from 27.04.2022). However, the BMF has not yet covered all the issues raised in practice with this letter; this applies in particular to the taxpayer’s obligation to register and participate. Additional decrees have been issued for this purpose.


The BMF letter first explains in detail the essential fundamentals and conditions of the crypto world in 29 of the 90 margins. In addition to definitions of virtual currencies and tokens (here summarized as cryptocurrencies), the concepts of mining, staking, lending, airdrops, wallets, masternodes, forks and ICOs are introduced and explained. This approach to creating conceptual clarity is very welcome and will hopefully facilitate discussions between tax advisers and assessment centers in the short term. At the same time, special cases and new innovations will continue to give rise to the need for explanations about the technical processes. BMF will continuously monitor developments and may need to respond with updates.

Crypto assets are always economic goods

In BMF’s view, each unit of a cryptocurrency represents an economic good that can be regularly attributed to the owner of the “private key”. BFH will in a currently pending appeal case (Az. IX R 3/22) decide whether this view – which is disputed in the literature with sometimes significant arguments – should be upheld.

If you follow BMF’s view, any sale or exchange – not only in Fiat currency but also in another cryptocurrency – is always a tax realization process. BMF thus sticks to the taxation of exchanging cryptocurrencies with cryptocurrencies. Germany is thus taking a path that is not shared by other EU countries such as Austria or France; is taxed only when it is exchanged back into a fiat currency. However, the targeted more precise taxation and theoretically greater fiscal justice constitute a practical collection problem for the tax offices, which in many cases will not obtain knowledge of crypto-to-crypto trading.

The distinction between corporate and private cryptocurrencies is still inaccurate

The BMF letter could not fully meet the hope of a tangible distinction between commercial cryptocurrency trading and private wealth management. In essence, it refers to the demarcation of commercial securities traders. According to this, the purchase and sale of cryptocurrencies in itself, although assuming a significant scope and extending over a longer period of time, is not yet sufficient to undertake commercial activity. “as long as it takes place in the usual forms that are the norm in private.” This distinction, taken from securities trading, does not help in the case of crypto trading, which of course has a different speed and is not yet common among individuals, in the critical cases of differentiation. The same applies to the addition of cryptocurrencies in fund structures.

If capital gains are attributed to private assets, the capital gains from cryptocurrencies are tax-free after one year of possession. A view first circulated by the BMF in June 2021 that certain actions typical of the industry (so-called staking or so-called lending) may lead to an extension of the holding period to ten years (§ 23, para. 1, point 1 (1). 2, sentence 4 EStG), is now expressly stated.

Determination of the holding period and the capital gain

Surprising for the industry: While BMF originally proposed the first-in-first-out (FiFo) method of determining the capital gain to determine the order of consumption, taxpayers can now choose to use the average method as an alternative.

The BMF letter also contains further information on determining the holding period and the capital gain in the individual cases. In particular, the taxpayer no longer has to, as originally required by the BMF, “Average of three exchanges” determine, but it is sufficient to indicate the price on a trading platform. This simplifies the documentation effort. BMF sets further clarifications of special acquisition processes (eg through so-called hard forks or so-called airdrops). BMF’s opinion must be taken into account in the assessment. At the same time, it makes sense to keep the tax assessments open, as a tax law review of these special cases, which are often judged differently in the literature, must certainly be expected.

Crypto assets as salary

Finally, BMF comments on the taxation of cryptocurrencies that are paid to employees as part of their remuneration or that can be purchased at a reduced price. Here, as a starting point, taxation can be considered as a financial benefit. BMF clarifies that the entry into the employee’s wallet is, in its opinion, the relevant inflow and valuation date, unless the promised cryptocurrencies can be traded or allocated prior to entry into the wallet. A list of the devices paid to crypto exchanges that were originally requested by BMF has now been provided.

mining and staking

Finally, the processes of block creation, which are so formative of cryptocurrencies, are also treated in more detail.

When BMF generates revenue from the creation of blocks using the so-called proof-of-work process (often referred to as “mining”), BMF assumes that the taxpayers working here are engaged in commercial activities. In BMF’s view, newly created units are considered “acquired” and should be booked accordingly. The classification as “acquisition” will have to be examined by the tax courts, as there is no derivative acquisition from a third party that characterizes an acquisition by the creation of new units.

When creating blocks using the so-called proof-of-stake procedure, BMF distinguishes with the following: So-called validators (in BMF’s terminology: “forging”) are active in the market and therefore generally generate income from commercial operations. It should be different for the so-called delegates (in BMF’s terminology: “staking”), who generate revenue from other services. The practical difference between these activities may be small in some cases; under certain circumstances, both activities can be initiated with a few minutes of effort per year. However, the tax difference is significant as the cryptocurrencies used and generated in the first case are commercially involved.


The letter is very gratifying, especially for private (passive) investors. The tax exemption for an investment property after a one-year holding period should make cryptocurrencies very fiscally attractive compared to traditional assets. At the same time, the BMF letter can not be considered an engine for innovations in the industry. Recent developments such as the recently widely discussed non-fungible tokens (NFTs) were not addressed (see HotzelHB control board from 20.05.2021).

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