Are Bitcoin and other cryptocurrencies really considered economic goods? This controversial topic has been occupying the crypto space for some time and has been given a new dynamic with a recent ruling from the Cologne Court of Finance. The concept of economic good is used in the income tax law. Simply broken down, economic goods are objects that are needed in order to pursue an economic purpose.
The verdict was preceded by a lawsuit filed by an investor who had invested around €20,000 in Bitcoin between 2014 and 2016. In 2017, he first converted his BTC to Ether (ETH) and then to Monero (XMR), before switching back. the privacy currency to Bitcoin and finally to euros. Altogether, the investor obtained profits of around 3.4 million euros, which he declared as private capital gains in his personal income tax return.
The investor then filed an objection to his income tax assessment and appealed to the Cologne Court of Finance. Among other things, he justified the lawsuit by saying that Bitcoin and company are not considered economic goods and therefore their sale is tax-free. A normal process, explain the lawyers Hendrik Arendt and Martin Friedberg of the commercial law firm CMS Hasche Solo. Tax experts have devoted a separate article to the court case. They tell BTC-ECHO:
The taxation of profits from the sale of crypto assets has not been finally clarified by the tax authorities or the tax courts. Crypto investors are advised to postpone the final income tax assessment by filing an appeal until the legal situation is clarified. You can also file an objection if you have previously claimed benefits yourself. This also prevents the tax authorities from subsequently accusing the taxpayer of concealing income.
Law firm CMS Hasche Solo
However, the Cologne Tax Court dismissed the claim. Cryptocurrencies can very well qualify as so-called “other economic goods”.
“Bitcoin verdict is not a surprise”
The court thus followed the position of the Federal Ministry of Finance. In June of last year, the highest financial authority classified Bitcoin and Co. as economic assets in a draft. Arendt and Friedberg are in conflict here.
On the one hand, it is too easy for us (as the BMF) to say that something is an economic good just because it is worth 40,000 euros. On the other hand, it is just as easy to try to avoid taxation by categorically excluding its application.
For Werner Hoffmann, too, the dismissal of the lawsuit is not a surprise. The tax expert and founder of the tax reporting firm told BTC-ECHO Pekuna:
The fact that the Cologne Tax Court reached this verdict does not surprise me personally. Previous rulings from Baden-Württemberg, for example, have also shown that Bitcoin and other cryptocurrencies are classified by the courts as “other economic goods.”
However, there is some disagreement between the various financial courts on this very issue. In a judgment from 2020, the FG Nuremberg considered a clarification necessary before the Federal Tax Court. According to Hoffmann, the Supreme Court of Finance has not yet ruled on this issue.
Tax confrontation before the Federal Tax Court (BFH)?
Said investor now dares to take the step before the BFH and thus sets a precedent. If the plaintiff’s appeal is granted, the supreme financial court will have to comment on the taxation of cryptocurrencies for the first time. How the decision will turn out is still in the stars. In the meantime, Werner Hoffmann considers possible a departure from previous case law by the Federal Tax Court.
Arendt and Friedberg are a bit more reserved. Over the years, the Federal Tax Court has defined a very broad scope for the term “commercial good”, so it would be easy for you to follow the case law of the Cologne Tax Court. Furthermore, the political component of the decision should not be ignored. According to tax experts, a different ruling from the BFH could ultimately put the legislature under heavy pressure to act.
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In the BTC-ECHO guide, we show you the best tools to create crypto tax reports automatically and easily.
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