The example of US tax authorities and Coinbase, which I already mentioned in part 2 of my entry on Bitcoin and other cryptocurrencies shows that foreign tax authorities can also access your data. The exchange of information is regulated as follows.
Exchange of information. Spontaneous? Automatically?
Based on the International Convention on Mutual Administrative Assistance in Tax Matters of 27 May 2010 (Secs. 8, 9 EU Mutual Assistance Directive), the German tax authorities could request information from the contracting states (EU member states, OECD member states, Singapore, Liechtenstein) via the spontaneous exchange of information. If Germany entered into a double taxation convention that is equal to the OECD-model double taxation convention with the state where the exchange company has its seat, the German tax authority has another possibility to receive tax relevant information. The German tax authority can request for administrative assistance at the tax authority of the other state (art. 26 para. 2 OECD-model double taxation convention).
Unfortunately, the wording of German law (FKAustG) is not clear as to whether the exchange companies, as well as banks and financial institutions, are obliged to make the corresponding reports to the relevant tax authority in their country (§ 19 FKAustG) as part of the automatic exchange of information (Common Reporting Standard (CRS) of the OECD of 21/07/2014, AIA). However, in line with the common interpretation of the wording, an exchange company is neither a financial institution nor a depository. As a result, it seems an obvious assumption that the exchange companies are not subject to the automatic exchange of information.
Cash receipt in own bank account
If you receive larger amounts of money in your bank account from the sale of cryptocurrencies, your bank may ask where these funds come from and, if necessary, file a money laundering suspicious activity report. There have been reports that a bank closed down an account after some money had been received. It is therefore advisable to notify your bank advisor in advance of any expected receipt of funds.
In addition, the obligation to report transfers from abroad into your German bank account of more than EUR 12,500 in accordance with the Foreign Trade and Payments Act must be observed.
Importing Bitcoin and other cryptocurrencies to a hardware wallet in Germany from a third country
Importing cash of EUR 10,000 or more must be declared to the German customs authorities. The question is, does this also apply to cryptocurrencies “stored” on a hardware wallet? Unfortunately, the legal situation is also not clear in this case. It is unlikely that the hardware wallet is subject to the regulations for cash and securities. However, the hardware wallet may constitute one of the goods which needs to be declared and whose customs value is determined by including the cryptocurrencies. However, the wording of the potential legal basis for this is also not sufficiently clear (Article 71 para. 1 (b) (i) UCC Customs Code, Regulation (EU) No. 952/2013 of the European Parliament and of the Council dated 9 October 2013 establishing the Community Customs Code).
Import or export of Bitcoin and other cryptocurrencies within the EU on a hardware wallet
When cash is imported or exported within the EU, its owner must declare the amount orally on request at customs checks. Equally declarable is its origin, beneficial owner and its purpose of use, even if the value limit of EUR 10,000 is not exceeded. It is unclear whether this obligation to provide information also applies to Bitcoin and other cryptocurrencies “stored” on a hardware wallet.
Exchange companies in Germany
If the exchange company is based in Germany, it is obliged to cooperate with the tax authorities – just like any other company (Sec. 90 AO). However, if an audit of an exchange company is solely aimed at determining the tax situation of the customers of the exchange company, the request for the audit is illegal. At the same time, it should be noted that the case law of the German Federal Fiscal Court (e.g. BFH, BStBl. II 2007, 227) provides a wide scope for any tax audits. Therefore, by way of specific questions regarding the company being audited, auditors can still receive the desired information on third parties. Investors should therefore assume that the German tax authorities will gain access to the data of customers of any exchange company in Germany. Any special tax obligations and regulations applicable to financial institutions, e.g. automated retrieval of account information, do not apply to exchange companies in Germany.
BE CAREFUL with missing information in your tax return
Please note that none of the information exchange procedures, the double tax treaties and any withholding tax applied abroad exempt you from the obligation to declare any income and gifts (inheritance) of Bitcoin and other cryptocurrencies which are subject to tax in Germany completely and in the correct amount in your tax return. If your tax return is incomplete, you should discuss any further steps with a legally authorised consultant (e.g. tax adviser, lawyer). Any potential incompleteness must be checked in particular to see how it can be remedied correctly, i.e. with the least possible consequences for you. In particular, you must check whether you can still submit a correction of your tax return (Sec. 153 para. 1 No. 1 AO). Alternatively, it must be checked whether a voluntary declaration (Sec. 371 AO) due to tax evasion is required and still possible. The cases that became publicly known in recent years show that in case of missing information on the tax return it is well worth mandating specialised tax advisors and lawyers. This can often avoid consequences impending under criminal law as well as further procedural costs.
Ignorance is not bliss in this case and does not protect you from prosecution!
How do companies enter Bitcoin/cryptocurrencies in their balance sheet and does the accounting have any impact on the equity required by the regulatory law? To be continued!
Titelbild / Cover picture: Copyright © fotolia