What are the RaiBlocks from Monero

Tax consulting company

What are cryptocurrencies like Bitcoins and what are the tax consequences for the investor?

At Bitcoins it is a digital currency. This currency has nothing to do with normal banking currency. It is a purely digital currency that is available on the Internet with the help of a peer to peer Application and an association of computers is handled. A peer-to-peer application is the name for a communication based on a computer network. Here all participating computers have equal rights and can use or provide services. Neither a normal bank nor a special central settlement point is therefore required.

The Bitcoin payment system was first described in 2008. In 2009, an open source reference software was published for this purpose. The Bitcoin computer network works with Bitcoin software that manages a decentralized database in which all transactions are recorded. You can access it simply by using your PC with an Internet connection and one of the popular online services.

To even on Trade and payment transactions To be able to participate, you still need Bitcoin wallet software. For this purpose, the Internet offers various Bitcoin wallets as desktop applications. Under Bitcoin wallet is ultimately to understand the Bitcoin account of the user / participant. Like a wallet or a stock account, from which you can see how high the stock of Bitcoins is and which transactions have been carried out.

All payment transactions between the participants, payment processing such as buying and selling, take place anonymously, without specifying the participants' personal data. The purchase of Bitcoins can also be done easily through Bitcoin traders or on the stock exchange. The information on this is easy to find on the Internet. In this case, no wallet is required. However, there are merchant fees. Corresponding user reports and tests are also available.

Bitcoins are thus a virtual currency independent of central banks and banks and a value protection / reinsurance. This type of currency is also called Cryptocurrency designated. Compared to the currencies that were the only currencies until 2008, neither coins nor banknotes are required for a crypto currency and the entire process is digital and anonymous. The term cryptocurrency was derived from the term "cryptography". This was due to the fact that all data / information is encrypted and processed anonymously. In the meantime, a whole range of other crypto currencies are traded on the Internet. In 2017, the capital in crypto currencies is estimated at around 500 billion euros. Other cryptocurrencies are: Neo, Rippele, NEM, Lisk, Dash, Ethereum, Litecoin, Monero, Zcash, IOTA, Verge, Tron, Raiblocks, FunFair and others. The cryptocurrency can therefore only be used by the group of computers in the computer community. The members of this computer community are called "miners", derived from the term "gold diggers". These miners also participate in the further development of the cryptocurrency by making their own computing capacity available to the community and not just in the price development.

The basis of a cryptocurrency is a fixed algorithmthat can no longer be changed. The algorithm also gives the maximum number of coins traded in a cryptocurrency. For example, the maximum number of bitcoins is limited to 21 million units. At the end of August 2017, 16.6 million of these were in circulation. Thus the “money supply” is fixed from the start and cannot be changed. It is therefore clear that with a larger or constantly growing number of participants and increased demand for the digital currency, the value of the currency increases constantly. Only with a declining number of participants and corresponding sales of the digital currency does the rate also fall.

The price increase of cryptocurrencies has been staggering in the past. In some cases, increases in value of up to 50,000% could be achieved in one year (example Neo: 01/01/2017, price 0.143369 $ / 12/31/2017 price 70 $). At the right time, 12 months later, investment capital of € 100 turned into around € 50,000. But things don't always go up. In the meantime, the Bitcoin currency is also subject to strong price fluctuations. For example, a price loss of around 15,000% was realized within six months. The main incentive of crypto currencies is clearly in "gambling" and not in their use as a regular means of payment. This assumes that the participants also have the appropriate "play money" at their disposal, in order not to run into financial difficulties. Even with the current rising rates of crypto currencies, these do not appear to be suitable as a solid investment. It is a high risk speculation with high profit and loss prospects.

In theory, cryptocurrencies are also called Means of payment suitable. Bitcoins can be used for purchases in many stores around the world. In shops, this simply works via mobile phone. Due to the high price fluctuations, however, cryptocurrencies have not yet established themselves as a means of payment.

Now we come to the topic Income tax from the point of view of one Private investor (Private wealth). The financial supervisory authority BaFin has legally classified cryptocurrencies as units of account and not as foreign exchange. It is not a legal tender, nor is it computer money. From a tax point of view, this means that it is a matter of trading in intangible assets and no income is generated from capital assets, but from private sales transactions (Section 23 of the Income Tax Act / EStG). Here the legislature grants an exemption of € 600 per year. If the currency is bought and sold within one year, the profits are subject to the investor's personal tax rate (income tax, soli surcharge, church tax). Important: A sale is not only the sale of Bitcoins, but also the use as a means of payment. Losses can only be offset against profits from private sales transactions and thus not against other types of income.

It is downright sensational that with a retention period of more than one year, this means the time of purchase and the time of sale are more than twelve months apart, profits and losses are not taken into account and thus tax-free profits can be achieved (Section 23 (1) No. 2 EStG ). It is therefore important for the investor to record the buying time, the selling time and the buying / selling price. The easiest way to do this is with an appropriate spreadsheet program (e.g. EXCEL). For example, if several Bitcoins are bought and sold one after the other, the rule "First in - First out" applies. This means that the first sales are added to the first purchases.

Example: Purchase of ten Bitcoins on January 12, 2016 at a rate of € 413.36 (1 Bitcoin = € 413.36). Sale of five Bitcoins on December 1st, 2016 at a price of € 710.31. The exchange rate gain of 5 x € 296.95 = € 1,484.75 is taxable because it falls short of the one-year period. The remaining bitcoins were sold on January 12, 2018 at a price of € 11,513.00. The exchange rate gain of 5 x € 11,099.64 = € 11,513, however, remains completely tax-free due to the retention period of more than one year.

Cryptocurrencies are treated differently for tax purposes, insofar as they Business assets of a company / entrepreneur. This is the case with the so-called "miners". The miner is an active part of the computer network and receives remuneration for providing computing power for the cryptocurrency. He is thus an entrepreneur, in contrast to the private investor, who only participates in the price development through buying and selling. The cryptocurrency is to be recorded for entrepreneurs like other assets and assigned to fixed or current assets. Income is generated from commercial activity in accordance with Section 15 of the Income Tax Act. The creation of cryptocurrencies (mining) is also a commercial activity that is subject to normal corporate taxation. If bitcoin transactions are carried out within a company, VAT aspects must also be checked. According to a decision of the ECJ (October 22, 2015 Rs C-264/14) from 2015, the commercial exchange of Bitcoins in conventional currencies is not subject to sales tax.

The favorable taxation of speculative profits is a thorn in the side of the tax authorities. The further development in this regard must be observed. It is strongly recommended to every investor to ensure the success of their cryptocurrency activities tax declaration to be specified and the individual processes to be classified for tax purposes. If this does not happen, he may become a tax evader. Depending on the amount of tax evaded, this can have serious consequences for him. The taxes to be paid, the fine and the evasion interest incurred can quickly exceed the sum of the total financial success and lead to additional economic hardship. In the worst case, the investor will end up with a criminal record. To speculate that what is going on will never be revealed is very risky and can endanger the existence of the investor.

Dieter P. Gonze, tax advisor

17.1.2018