Germany’s finance ministry has determined that it will not tax bitcoin payments, allowing cryptocurrency users to make everyday transactions without the hassle of reporting and paying capital gains realized at the time of disposal.
Germany Won’t Tax Bitcoin Payments, Finance Ministry Says
The regulatory guidance, published Tuesday by the Bundesministerium der Finanzen, indicates that the country will treat bitcoin and other cryptocurrencies as equivalent to legal tender in cases when it as used as a means of payment, e.g. for the proverbial cup of coffee.
That said, cryptocurrency users must pay a value-added tax (VAT) when exchanging their coins or tokens for fiat currency at cryptocurrency exchanges, a provision designed to ensure that cryptoasset investments are treated accordingly.
To some extent, though, this provision merely shifts the cryptocurrency payment tax burden from the customer to the merchant, as most merchants convert cryptocurrencies into fiat at the point of sale. However, cryptocurrency payment processors can likely update their systems to make it simple for merchants to report these transactions.
Notably, the guidance — which was based on a 2015 European Court of Justice ruling — said that cryptocurrency miners operating in Germany will not be taxed on block rewards since the service is voluntary. Nevertheless, due to the document’s other provisions, they will incur VAT fees when they convert the rewards into fiat currency.
Similar US Legislation Fails to Muster Support
In the US, the Congressional Blockchain Caucus has drafted legislation that would have had a similar impact on legitimizing cryptocurrencies as a medium of exchange.
At present, the Internal Revenue Service (IRS) considers cryptocurrency to be “property” for tax purposes, meaning that US cryptocurrency users are legally required to maintain a detailed log of all transactions, as well as the profit or loss realized as the result of each payment. Unsurprisingly, most users do not comply with these stringent requirements.
The Cryptocurrency Tax Fairness Act, introduced last year, would have eliminated reporting requirements on transactions worth less than $600. However, a bid to add the bill as an amendment to tax reform legislation failed to garner enough support to advance.
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