Traders and investors: is it necessary to submit a voluntary disclosure regarding tax evasion at BTC, ETH, LTC and Co.?
This article is first on the Crypto Crime Blog published.
After 2017, 2020 has been very profitable for most cryptocurrency traders and investors. According to a current estimate by the Frankfurt School Blockchain Center, this is a potential Tax revenue from cryptocurrencies in 2020 approx. 1.2 billion euros. The tax authorities therefore have a special eye on crypto issues. Is a voluntary disclosure for tax evasion required?
Treasury hopes for taxes from crypto profits
It doesn’t take a lot of imagination to realize that Tax office naturally would like to collect this tax substrate in some form. In addition, the state treasury has to record a significant decrease in tax and other income due to the current corona pandemic.
The blockchain center’s sensational tax estimate could be another reason for all crypto investors “clean table”To do if, for example, they should not have declared their capital gains from 2017 to the tax office.
Also the press coverage of the last few months about the Cryptocurrency hype such as Bitcoin (BTC) and Dogecoin (DOGE) or the phenomenon of non-fungible tokens (NFT) contribute to the fact that the topic is increasingly coming into focus. These risk factors should be taken into account when considering whether to file a voluntary report for tax evasion.
Anything else would be alien to life. Because just that Criminal tax law and the criminal tax investigations have been heavily influenced by political and social demands in recent years. Whether these always made sense is another question.
Cryptocurrencies and voluntary disclosure of tax evasion
There are a number of particularitiesthat must be taken into account in the case of a voluntary disclosure for tax evasion with crypto currencies The individual case is always decisive. In general, the following applies: The voluntary disclosure (Section 371 AO of the Fiscal Code (AO)) requires that for all tax offenses of a type of tax – for example income tax – the incorrect information is corrected in full, the incomplete information added or the omitted information made up. The corrected information must be provided for all tax offenses of a type of tax that are not statute-barred, but at least for all tax offenses of a type of tax within the last ten calendar years.
Example: Voluntary disclosure of capital gains with cryptocurrencies
Our fictional investor named Vitalik has a taxable capital gain in 2017 obtained from crypto currencies in the amount of 15,000 euros and deliberately did not explain this to the tax office. In 2018 and 2019 he suffered small losses. In 2020 he was again able to record a capital gain, namely in the amount of 20,000 euros. Since the “box is getting too hot” for him, Vitalik asks his lawyer whether he should declare all profits or only those from 2020 to the tax office.
Solution (simplified)
By not disclosing his profits from cryptocurrency transactions in 2017 and 2020, there is an initial suspicion of one in each case Income tax evasion (Sections 370 AO in conjunction with the Income Tax Act (EStG)). If Vitalik were to declare the profits only for 2020 to the tax office, there would be a risk that the tax office would ask about the old years – and in the worst case initiate criminal tax proceedings. There could be an overall ineffective voluntary disclosure, since such tactics (so-called “partial self-disclosure”) is no longer possible.
So that Vitalik can safely go the way to retroactive impunity, would be with Submission of a voluntary disclosure required to provide information on all tax offenses during the ten-year post-tax return period – i.e. also for 2017. In other words: all or nothing. No half things. You only have one try, you can’t improve it. So the voluntary disclosure has to be right. Like a tailor-made suit.
Danger
It would have all of the income and expenses to all sources of income of the respective tax type for the last 10 years. In the case of income tax, in addition to other income (Section 23 EStG), this would also include income from self-employed or non-self-employed work as well as from capital assets. Experience teaches: Especially the processing of the last few years is extremely laborious and time-consuming in individual cases, since circumstances have to be reconstructed retrospectively for which not all information may be available.
tip
Crypto investors can significantly reduce the costs of processing if they provide the relevant documents in a fully prepared form. This not only saves valuable time, but also money. To the relevant documents in the course of preparing the voluntary disclosure include, for example, the past tax returns and tax assessments issued on them, as well as bank statements. If the documents are not available, the tax-relevant facts can be reconstructed and assessed with the help of e-mails (e.g. trading confirmations).
In order to keep an overview, it is advisable to start trades and investments with Bitcoin, Ether, Litecoin and Co. with an appropriate one Software or online tools to document. There are different providers on the market – with sometimes very different quality when it comes to tracking and reporting of deals with cryptocurrencies. It is not guaranteed in every case that the “Tax reporting”The particularities of German tax law are sufficient.
Consequences (simplified)
Ideally, if the voluntary disclosure is complete and correct, “only” the corresponding tax assessments will be changed. However, it is not uncommon for this to happen first Initiation of criminal tax proceedings. Background: In these criminal proceedings, the effectiveness of the voluntary disclosure is checked; in addition, the statute of limitations is interrupted by the introduction.
If the information is complete and correct, and the taxes and interest have been paid – that is, the voluntary disclosure is effective as a whole – criminal tax proceedings will be initiated set. There was no charge, no trial, you have no criminal record. However, depending on the individual case extra-criminal consequences occur, e.g. for civil servants, soldiers or tradespeople.
Regarding the interest: Especially in the case of periods in the past, the interest have a significant economic impact. The interest rate is 0.5% per month or 6% per year. In this context, interest on arrears (§ 233a AO) and evasion interest (§ 235 AO) are relevant. However, the interest on arrears would be offset against the interest on evasion (Section 235 (4) AO).
This contribution is not intended to and cannot replace legal advice in individual cases. Despite careful research, the authors assume no liability for the topicality, correctness and completeness of the article.
About the author
Thorsten Franke-Roericht founded the “Alliance Crypto Crime Defense” together with Martin Figatowski. You are one of the few lawyers in Germany who specialize in the areas of crypto criminal law and crypto compliance.