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BMF letter on the income tax treatment of virtual currencies and of tokens from June 17, 2021 - part 1

After a long wait for a statement from the German Federal Ministry of Finance on the income tax treatment of virtual currencies the time had finally come on June 17, 2021. The first draft of a BMF letter (hereinafter “BMF draft”) was forwarded to the associations and stakeholders and is expected to result in a decree by the end of the year. Reading the BMF Draft is a challenge for many a reader, at least for all those familiar with the virtual world, who are astonished to learn that their actions could trigger tax consequences, and for some tax professionals who have to familiarize themselves with virtual issues in order to understand what is actually to be regulated for tax purposes.

The draft is divided into two sections. In Section I, it defines virtual terms, the tax treatment of which it explains in Section II. In the following, (only) the income tax treatment of virtual currencies, hereinafter referred to in simplified form as “Bitcoins”, as well as the "mining" of Bitcoins provided for in the BMF draft will be presented first.

“Virtual currencies”

The BMF draft defines virtual currencies as digitally represented units of value of currencies that are not issued or guaranteed by any central bank or public body and do not have the legal status of currency or money, but are accepted as a medium of exchange and are transmitted, stored and traded electronically.

Purchase and sale of virtual currencies

Income tax treatment in private assets

Gains from the sale of Bitcoins held as private assets constitute taxable income from private sales transactions (within the meaning of Section 22 No. 2 in conjunction with Section 23 (1) Sentence 1 No. 2 EStG) if there is a period of less than one year between the acquisition and the sale. In this context, acquisition means not only the purchase of Bitcoins, goods or services, but also the exchange with other virtual or state currencies. Thus, the one-year period starts anew with each exchange. It is important to note that the one-year period is extended to 10 years if Bitcoins are used as a source of income and income is generated from them in at least one calendar year, such as when Bitcoins are provided for use against payment (“lending”).

For the calculation of the one-year period, the acquisition and disposal date resulting from the Wallet is generally decisive. For simplification reasons, however, the so-called first in first out (FiFo) method can also be applied, which assumes that the Bitcoins purchased first are sold first. According to the BMF draft, the gain or loss from the sale of Bitcoins is the proceeds from the sale less the acquisition and advertising costs. If the gain does not exceed Euro 600 in the year, it is tax-free.

If Bitcoins are repeatedly bought and sold, this can lead to a commercial activity with the consequence of commercial income (Section 15 EStG). Regarding the question of when a commercial activity is to be assumed, the BMF draft refers to the case law on foreign exchange trading. According to this case law, frequent purchases and sales alone do not constitute a commercial activity, even if a larger volume is achieved. Rather, a commercial activity requires that the taxpayer behaves like a “trader” or in a “typical banking manner” and uses a business operation set up in a commercial manner. The BMF draft intends to apply these principles accordingly to the purchase and sale of Bitcoins.

Income tax treatment in private assets

According to the BMF draft, if Bitcoins are business assets, they are to be allocated to fixed or current assets as non-depreciable assets in accordance with general balance sheet tax principles. Sales proceeds are operating income from which the acquisition costs of the Bitcoins are deducted. If the acquisition costs cannot be determined, they can be valued at the average acquisition costs of all acquired Bitcoins.


In mining, participants (miners) use their computers to provide computing power for processing transactions (block creation). This is referred to as mining in the same way as gold mining. Since this requires enormous computing power, miners often join together to form so-called miner pools.

According to the BMF draft, mining represents an acquisition transaction that can be private asset management or commercial activity, depending on the individual case. The income includes both the Bitcoins received in connection with the block creation and the transaction fees.

Income from business operations

According to the BMF draft - irrespective of the amount of expenditure on hardware, software and electricity - it is rebuttably presumed that mining is a commercial activity. This leads not only to income from business operations, but also to a trade tax liability.

Private asset management

However, there is no commercial activity in the case of the mere management of private assets, i.e. if the activity (only) represents the “extraction of fruit from asset values to be preserved and the exploitation of substantial assets through redeployment is not in the foreground”. The BMF draft does not explain when this is the case, but rather refers to the circumstances of the individual case. Incidentally, these criteria are also applicable to the question of whether the participants in a mining pool are to be regarded as co-entrepreneurs or not.

(Interim) result

The above comments on the BMF draft on the income tax treatment of virtual currencies and tokens dated June 17, 2021 provide (only) an initial overview of the planned regulations. However, these indicate or fear that the tax authorities want to cover all activities in connection with virtual currencies and tax income or profits from them. Naturally, many questions are still open and it is to be expected that the consultation of the associations will lead to changes or amendments.

Another article describes the BMF draft's comments on the income tax consequences of “Initial Coin Offering”, “Staking”, “Lending” and “Airdrop”.


Gerd Seeliger

Dr. Gerd Seeliger


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