German Court Rejects Crypto Owner’s Attempt To Claim $3.6M As ‘Dataset’

A plaintiff in Germany who tried to claim that $3.6 million in crypto winnings was not taxable income but instead constituted a “dataset” lost the case before Germany’s largest financial court on February 28.

In a significant ruling on the tax registration of virtual currencies, the Federal Tax Court (BFH) in Germany has ruled that capital gains from cryptocurrency transactions are subject to taxation.

According to the rules on income from private sale transactions, crypto investors are obliged to declare these gains on their tax returns.

On February 28, the BFH declared that cryptocurrencies are considered economic goods subject to income tax for private sales transactions if they are bought and sold within a year.

However, if investors hold the currencies for more than a year, any profits will be tax-free, which is not the case with stocks, according to German law.

The investor did not consider the “dataset” a taxable asset

According to the German newspaper Frankfurter Allgemeine Zeitungthere was a disagreement with the tax office as to whether a particular profit earned from cryptocurrency transactions was taxable.

The plaintiff argued that crypto winnings are records and therefore cannot be classified as a “commercial asset” that is taxable.

The plaintiff also argued that the lack of effective enforcement makes taxation impossible, as only honest taxpayers report their crypto investments, resulting in an unconstitutional “dumb tax”.

However, the Cologne Financial Court dismissed the lawsuit in 2021, and similar lawsuits challenging cryptocurrency taxation were also unsuccessful before the Baden-Württemberg and Berlin-Brandenburg Financial Courts.

The Financial Court of Nuremberg had expressed doubts about whether speculative transactions involving virtual currencies were subject to income tax, but those decisions have no weight on the decision of the federal BFH decision that came this week.

German court rules that because crypto has market value, taxation of it is possible

The judgment means that virtual currencies, such as Bitcoin and Ethereum, are considered means of payment that are traded on platforms and exchanges, have market value and can be used for payment transactions between involved parties.

This is the financial perspective on these currencies, supported by BFH, in line with the Federal Government’s legal opinion presented in May 2022 via a guidance on the income tax treatment of bitcoins and other crypto-assets.

BFH also addressed the plaintiffs’ argument that only honest individuals pay tax on crypto profits, saying there is no structural deficit in enforcement. The absence of collection rules and evidence that the tax authorities cannot record profits and losses from crypto transactions indicate otherwise.

BFH assessed cases where investigative measures, such as requests for aggregate information, were unsuccessful as individual cases that do not indicate a structural deficit in enforcement.

It is uncertain how much tax revenue the Treasury receives from crypto transactions, as income on which income tax is payable is usually not attributed to specific assets, such as specific capital gains.