Voluntary declaration in case of tax evasion with cryptocurrencies (Bitcoin, Ethereum, Bitcoin Cash, etc.)
It can generally be assumed that private capital gains transactions with cryptocurrencies have attracted the attention of the tax authorities since 2017 at the latest. Also in 2020, some investors are likely to have enjoyed not insignificant capital gains. On the other hand, those who forgot or deliberately omitted to declare corresponding gains to the tax office in previous years may, from the point of view of the tax office, have made themselves liable to prosecution for tax evasion under Section 370 of the German Fiscal Code (AO). — Martin Figatowski
The German version can be found here.
In order for a voluntary disclosure under Section 371 of the German Fiscal Code (AO) to have a penalty-exempt effect, it is generally necessary that the incorrect information be corrected in full, the incomplete information be supplemented or the omitted information be made up for with respect to all tax offenses of a particular type of tax.
The corrected information must be provided for all tax offences of a tax type (income tax, corporate income tax, etc.) that are not subject to the statute of limitations, but at least for all tax offences of a tax type within the last ten calendar years.
Example:
Bob made a taxable capital gain from cryptocurrencies in the amount of €15,000 in the year 2017 and deliberately did not declare it to the tax office. In 2018 and 2019, he had a loss. In 2020, he is expected to realize a capital gain in the amount of 20,000 euros. Since the “box is getting too hot” for him, Bob asks his lawyer in December 2020 whether he should declare all profits or only those from 2020 to the tax office.
When asked by his lawyer, Bob explains that he “rounded up” commercially in 2014 for travel expenses for his employee income.
Solution (simplified):
Bob committed tax evasion in 2017 by deliberately not declaring his gains from cryptocurrency transactions. If he were to declare the profits to the tax office only for the year 2020, there is a risk that the tax office would initiate criminal tax proceedings because of the year 2017.
In order for Bob to remain unpunished, it is therefore necessary to submit a voluntary declaration in accordance with Section 371 of the German Fiscal Code (AO). In this, information must be provided on all tax offenses of the ten-year post-declaration period. Consequently, the tax returns for the years prior to 2017 must also be reviewed by a lawyer or tax advisor and, if necessary, also corrected.
As the example shows, the reappraisal in individual cases can thus be laborious (and in particular costly), as sometimes the information on all sources of income of a tax type (in the case of income tax, in addition to other income pursuant to Section 23 EStG, e.g. also income from self-employed and non-self-employed work as well as from capital assets) of the last 10 years must be checked and corrected if necessary.
If errors occur during the processing, this can, in the worst case, lead to the loss of the penalty-exempt effect of the voluntary disclosure and the declarant literally “turns himself in”.
It is therefore advisable to file a voluntary disclosure to the tax office due to previously undeclared capital gains from cryptocurrencies only with the help of a lawyer specializing in criminal tax law and the taxation of cryptocurrencies.
Author
Attorney Martin Figatowski, LL.M. (Tax).
I am a lawyer at GTK Rechtsanwälte Klein Figatowski Todtenhöfer in Bonn and previously worked for many years in the senior civil service of the North Rhine-Westphalia tax administration, among other things as a specialist area manager in the tax investigation/criminal cases and fines office. You can find my law firm website at www.gtkr.de and my personal website at www.martin-figatowski.de .
This article is for informational purposes only and does not constitute tax advice.
