a financial instrument in the form of
units of account pursuant to the German
Banking Act, i.e. as units of value not
denominated for legal tender, which is at
least comparable to foreign currencies.
BaFin concluded that taking Bitcoins
as a substitute currency for cash or
scriptural money in currencies of legal
tender to participate in the economy does
not need an authorization. In general,
the same is true for the sale of mined or
acquired Bitcoins or their purchase.
When accepting Bitcoins as payment,
a company still provides no banking
transactions or financial service. The
mere participation in the existing
market of Bitcoins does not need an
authorization.
Although, things might get difficult
when interposing a Bitcoins-payment-
provider, who himself may need an
authorization.
However, an authorization
requirement will arise if additional
circumstances appear. That is the case if
a special contribution is paid to sustain,
foster or create the market. E.g., if
people advertise on the market that they
regularly purchase and sell Bitcoins,
this then qualifies as proprietary trading
subject to authorization pursuant to the
German Banking Act. The same normally
applies for mining pools.
As far as Bitcoins becoming the
object of trade themselves, there are
several authorization elements that
may be relevant, e.g. principal broking
services, the multilateral trading system,
investment and contract broking, as well
as proprietary trading.
cryptographic currencies are not legal
tender and can also not be classified
as e-money, as the BaFin clarified in
December 2013.
Besides the income tax effects
of Bitcoin transactions, the value-
added tax treatment of Bitcoins is of
particular interest to companies. It
companies accepting Bitcoins as a means
of payment if the tax authorities treat
the later sale of Bitcoins via a trading
platform as a service subject to value-
added tax.
Whether this way of handling
such transactions is correct, is at least
questionable. First of all, according to
a judgment of the European Court of
Justice, the pure purchase and sale of
securities in a company is not at all a
business activity and thus not taxable.
Transactions with Bitcoins could in this
respect be considered similar. Regarding
tax exemption in connection with Bitcoin
transactions, the German Federal Ministry
of Finance has already expressed its first
opinion in 2013: The trading of Bitcoins
and the procurement of Bitcoin sales
is not exempted from the value-added
tax, according to Section 4 no. 8b of the
German Value-Added Tax Act, since
Bitcoins are not legal tender. In individual
cases, however, tax exemption may result
from Section 4 no. 8c of the German
Value-Added Tax Act, according to a
September 2013 statement of the German
Federal Ministry of Finance.
All this relates to the question of
tax exemption as a second step of the
examination of a VAT liability. Only in
the case of an actual delivery or other
service according to Section 1 (1) of the
German Value-Added Tax Act, which is
subject to value-added tax, the question
arises, whether the transaction is
according to Section 4 tax exempt or not.
Unlike the sale of Bitcoins,
transactions, which are used merely for
the pure payment of a fee, should not
be subject to value-added tax according
to a statement by the German Federal
Ministry of Finance in September 2013.
Therefore, the use of Bitcoins as a means
of payment is not taxable according to
Section 1(1) of the German Value-Added
Tax Act. Assuming first, Bitcoins are
ordinary assets and not money, and
second, in a "payment process," Bitcoins
are exchanged for other goods and
services (which normally triggers value-
added tax on both sides), this statement
added tax law in many cases does not,
however, strictly follow the income
tax law. Therefore, it may be correct
to treat Bitcoins at least as a "fee" for
value-added tax purposes. In fact, the
entrepreneur, who uses Bitcoins as a
form of payment, pursues no economic
interests beyond the pure payment of
a fee. In 1969, the German Federal
Finance Court already decided that in
such a case no value-added tax accrues.
A statement of the Finance
Ministry on April 23, 2014, shocked
all companies. It was announced that
besides the trade of bitcoins, also the
use of Bitcoins must be considered
a taxable service for which no tax
exemption is applicable. This recent
statement contradicts the announcement
of September 2013. Back then, the
Ministry said that the mere payment of
remuneration is not delivery or other
service, so that the use of Bitcoins as
a means of payment is not subject to
VAT at all. However, given the recent
statement, entrepreneurs have to worry
that the tax authorities will impose
value-added tax on all transactions with
bitcoins, including the use of Bitcoins as
a form of payment.
So it is urgently needed that the
value-added tax treatment of Bitcoin
transactions be clarified in a satisfactory
manner.
spreading technology with enormous
potential. Due to its novelty, not all
legal matters are settled at the moment.
Everyone who is interested in imple-
menting Bitcoins in his or her business
case or starting one on the cryptocur-
rency should get extensive legal advice
on the regulatory and tax issues concern-
ing Bitcoins in the targeted jurisdiction.
It remains to be seen, how regulatory
institutions will assess Bitcoin transac-
tions and Bitcoin trading in the future.