The debate surrounding the taxation of cryptocurrencies in Germany is intensifying as the Green parliamentary group, Alliance90/The Greens, calls for the removal of a tax exemption that benefits cryptocurrency investments.
Currently, cryptocurrency taxes in Germany are determined by the length of time an investor holds their crypto. After holding crypto for one year, private investors can realize tax-free trading profits. This one-year period was implemented to encourage long-term investments and make Germany more appealing to crypto investors. The intention is to support long-term investors while discouraging speculative short-term transactions.
However, the Greens argue that this unique exemption period is unfair because other financial instruments are subject to a flat 25% capital gains tax, regardless of how long they are held. This proposal has sparked discussions about the potential impact on investment culture, tax fairness, and the administration of crypto transactions.
Sabine Grützmacher, a member of the Bundestag for the Greens, defends the proposal and advocates for equal conditions for different investment options. She points out that the capital gains tax on stock profits has existed since 2009 without a tax-free minimum holding period. The Greens classify crypto tokens as capital investments, comparing them more to stocks or gold than currency. However, due to the high volatility of crypto token values, Grützmacher believes that significant consumer protections are necessary before recommending them for investment.
Grützmacher emphasizes that the Green’s proposal is still under consideration and that any proposal would include a cut-off date. This means that cryptocurrencies purchased before a certain date would still be eligible for tax-free sales even after the new law takes effect.
Not everyone agrees with the Greens’ argument that crypto should not have an exemption. Ulli Spankowski, founder of the crypto trading app Bison and chief digital officer at Boerse Stuttgart Digital, believes that the classification of crypto assets in the German tax code is clear. Under current law, crypto assets are considered “other economic goods” and are eligible for tax-free trading after one year, similar to physical gold.
Spankowski argues that the one-year holding period is an important tool for expanding the investor base and has made Germany an attractive location for crypto investors. Frank Schäffler, a member of the Bundestag for the Free Democratic Party (FDP), agrees that abolishing the holding period would hinder investment culture in Germany. He believes that capital formation should be simplified, and long-term investments should be rewarded by increasing the tax exemption limit.
The Greens’ proposal faces challenges in passing since they require the approval of the FDP and SPD. The current governing coalition in Germany, led by Chancellor Olaf Scholz, is experiencing a growing rift between the Greens and the FDP, making it difficult to reach common ground on policy issues.
The potential impact of abolishing the tax exemption on German markets and investing remains uncertain. While the popularity of cryptocurrencies among German investors is increasing, overall investment rates in Germany are still relatively low compared to other European countries. Ulli Spankowski argues that a change in the law and the complete removal of the holding period will not create incentives for a more active investment culture. Instead, he suggests that the government can incentivize investors through tax breaks and educational initiatives to promote a sensible investment culture in Germany.