What does the BMF letter say about crypto, NFT, virtual currencies and other tokens?

As we specialize in tax advice in connection with NFTs, we regret it in the BMF letter unfortunately not a separate scope for NFTs is taken care of.

There are undeniably many features that need to be considered in this area, which also has a tax return. It will be therefore, many questions about taxation in the crypto sector remain unanswered. This is especially true for the NFT area.

The essentials at first glance (not exhaustive) are attached:

All processes in the crypto world can have tax relevance

It remains the case that all purchases and exchanges made in the crypto world remain tax-relevant in the opinion of the Ministry of Finance. All processes in the wallet must therefore be considered and valued for tax purposes.

The approach of assuming a tax relevance only if the “cryptocurrencies” are exchanged from the purse back to the fiat has apparently not caught on with the economic administration.

10-year team period decreases (for the time being?)

First of all, it’s nice that the 10-year holding period disappears, at least according to the management. This means that all tokens stored as private assets can be sold tax-free after one year, regardless of their use.

I’m curious as to whether it holds, for the downside of the tax exemption is that any deficits over the year period can no longer be claimed. It is quite conceivable that taxpayers will sue for tax recognition of their deficit over the 10-year holding period.

Separation between private and commercial transactions remains difficult in individual cases

In my opinion, the new letter does not succeed in a clear demarcation between private and business enterprise either. Since mining and forging are still considered commercial activities, the tax question arises as to whether tokens can be kept “private” at all. Determining the extent of taxable commercial operations does not only involve tax risks for partnerships.

In this regard, the associated tokens are exempt from the one-year speculative obligation and are always subject to tax considerations.

New way to determine the order of consumption

In any case, the calculation of the capital gain according to the “average method” instead of the first-in-first-out method (FiFo) should be understood as a relief. In this regard, the taxpayer now has the right to choose.

This is also of great importance for the NFT market, where the acquisition of cryptocurrencies (Ethereum) is regularly only a stopover (albeit a significant one from a tax point of view).

Airdrop tax problems

In the case of airdrops, the tax authorities now assume that a “drop” is already a tax-relevant event. In any case, the linking of a wallet is seen as a sufficient “contribution” to be attributed to other income (§ 22 (1) (3) EstG).

The received airdrop must then be determined by the market value, which raises significant questions about its determination (not only in the NFT area). As a consequence, airdrop is also subject to the one-year speculation period. In these cases, the airdrop can only be sold tax-free after a holding period of one year.

This task poses a great tax risk, because if the price of airdrop collapses after the allotment and airdrop is sold within the one-year period, a loss set-off is excluded (receipt: airdrop = profit, airdrop sale = loss) due to the different types of income (22 para. 1 no. 3 § 3 EStG).

documentation requirements

Unfortunately, there is no concrete information from the Ministry of Finance. However, it is expected that a further letter will address this topic separately.

I will be happy to keep you updated on this.

Sincerely, Christopher Arendt

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