The legal situation and circumstance regarding the taxation of crypto-assets – an increasingly popular form of investment – is still largely unclear. Only in the event of private crypto trading is there a taxation guideline from the BMF, which primarily follows the general tax regulations. However, due to the novelty of the economic goods, assets and transactions, this “approach” is not always unproblematic. In order to be able to record crypto-assets in a tax-efficient manner, a fundamental understanding of the respective construct is necessary. For tax purposes, it is essential how crypto-assets are classified: as in-tangible assets, as mere basic rights or as none of the above. Hence, there is no case law, tax legislation or best practices in this area – apart from the given BMF info. Not only are the tax consequences upon sale unclear; but specific taxation already fails due to the availability of an uniform definition of the respective crypto-assets. Not least for this reason, a case-by-case analysis of the respective asset is essential in order to be able to assess the appropriate taxation.
The following series of articles aims to remedy these issues. In each section, the functionality of a typical crypto asset will be examined and the resulting (eventually possible) tax assessment will be outlined. We will start with the crypto-asset Airdrop.
Definition and mode of operation
Airdrops (“dropping from the air”) refer to the free distribution of certain tokens to various holders of a cryptocurrency. Said holders don’t have to pay for the cryptocurrency received through an airdrop. However, filling out online forms, liking social media posts or staking a certain amount of coins, may be conditions to qualify for an airdrop. Reasons for giving away cryptocurrencies via airdrop are manifold. Often it is to create awareness for a new currency. Crypto exchanges also use airdrops to reward customers for their loyalty (in the form of a “bonus programme”). By means of an airdrop, cryptocurrencies are for instance credited to the wallet in which the beneficiary holds a certain amount of the cryptocurrency Litecoin. Also, by holding a certain amount of cryptocurrency on another blockchain, one can get access to tokens of a new cryptocurrency.
The cryptocurrencies issued via airdrop are either created directly in the beneficiary’s wallet or transferred from a pool of the issuer to the beneficiary’s wallet.
If an airdrop is received without any compensation by the private user, it is considered as a tax-free “gift” (similar to a lottery win); reporting obligations acc to Sec 121a Federal Tax Code must be observed. If there is no compensation necessary, the subsequent sale is also not subject to income tax due to the lack of an acquisition transaction within the meaning of Sec 31 ITA.
If the private recipient must provide a (counter)service in order to receive an airdrop, it must be presumed that this is service acc to Sec 29 item 3 ITA. These are to be recognized as income in the tax return at the euro market price (exemption limit of EUR 220 per calendar year).
Capital gains on coins received via airdrop remain tax-free in any case after the expiry of one year after “acquisition” acc to Sec 31 ITA. If sold within the one-year period, the value realised are subject to progressive income tax (Sec 31 ITA), provided that the sum of all gains realized from the private sales transactions in the calendar year does not exceed EUR 440.
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