Germany recognizes Bitcoin as "private money"

Success for the digital currency: The Federal Ministry of Finance recognizes Bitcoin for the first time as "private money". It is still unclear whether commercial transactions may result in sales tax.

If the word new ground was ever appropriate for an Internet phenomenon, then for bitcoins. Bitcoins are a working digital means of payment, but as they are judged from an economic, financial or legal standpoint, many questions arise. A parliamentary question posed by the Bundestag member Frank Schäffler (FDP) now brings a little clarity on how the Federal Government assesses the status of bitcoins.

The Ministry of Finance's response shows that the federal government sees bitcoins as units of account. As such, they are a type of "private money" that can be used as a means of payment in multilateral settlement circles. "For the first time, the federal government recognizes Bitcoins as private money," commented Schäffler, who has become known as a critic of the "euro rescue policy".

The mining of bitcoins is also in the eyes of the Ministry of Finance private money creation. As a result, bitcoins would be approved as private money by the federal government tax and legal. It is also clear from the Ministry of Finance's response that bitcoin sales are not subject to VAT exemption under clause 4 (8) (b) of the UStG.

Price gains after one year tax-free

That, in turn raises new questions. Recently, the Treasury Department made clear that bitcoin price gains are tax-free after one year. Now the question arises, on which kind of Bitcoin transactions VAT arises. In fact, however, the circle of those affected should be very small. According to the Berlin tax consultant Wolfgang Wawro, VAT should only apply to persons who commercially trade in bitcoins.

He draws the comparison to a commercial dealer on Ebay. Anyone who occasionally sells a bottle of wine is not a commercial dealer and does not have to pay VAT on his sales. However, those who regularly sell wine on the online platform and claim part of their livelihood from it can become subject to VAT. The same applies in principle to Bitcoin dealers.

Oliver Flaskämper, head of the leading German trading center Bitcoin.de, sees no serious impact on the digital money trade. "From our point of view, our clients have private asset management from a tax perspective and a license-free, proprietary business, irrespective of a number of bitcoins traded and the volume of transactions," says Flaskämper.

Hurdles for VAT are high

The Federal Finance Court (BFH) has repeatedly made it clear that the hurdles from "private asset management" to "commercial trade in financial instruments" are extremely high and regularly only come into question if you are not only for yourself ("own account"), but also for other persons ("foreign account") acts.

However, it should also be true: If it turns out in the end that the commercial trade in bitcoins is really subject to VAT, then, of course, commercial Bitcoin dealers and intermediaries would have to pay and postpone the sales tax, "says Flaskämper. However, the trade on Bitcoin.de will affect this only marginally, if at all.

Even traders who accept Bitcoins as a means of payment, in the estimation of Flaskämper do not have to pay sales tax: "The use of Bitcoins as a means of payment is not a service. Only the service provided, that is the purchased goods or services, is taxed, "says the entrepreneur. The actual payment process, however, is not a taxable benefit.