Crypto assets held privately: holding period, swaps and the exemption limit

In March an investor swaps Bitcoin she bought last autumn for 5,000 € into Ether worth 6,200 € and never withdraws a single euro. She assumes the swap has no tax effect. The Federal Fiscal Court sees it as a disposal — and because the units were held for less than twelve months, 1,200 € of price gain is taxable.

The statute does not mention crypto assets

Anyone searching the Income Tax Act for Bitcoin, tokens or cryptocurrency will find nothing in the rules on private disposals. Section 23 speaks of land and of other assets, and of no particular type of investment. The taxation of digital units therefore follows from a general concept, not from a special rule.

That general concept is the asset, the Wirtschaftsgut. According to case law it matches the commercial-law notion of an asset and is to be read broadly: it covers not only things and rights but also factual positions that have an independent, separately measurable value and can be transferred in economic terms.

Whether a token meets these criteria was disputed for a long time. Taxpayers argued that a unit is merely a chain of digital signatures with no substance of its own, a kind of accounting fragment, and that acquiring one resembles a non-taxable lottery win. That view did not prevail in court.

In its judgment of 14 February 2023 (IX R 3/22), the Federal Fiscal Court held that virtual currencies in the form of so-called currency tokens are among the other assets that can be the subject of a private disposal transaction. The case concerned Bitcoin, Ether and Monero.

The court expressly noted that such tokens are neither money in the civil-law sense nor electronic money. They are, however, used as a means of payment, have a market value and can be transferred to third parties for consideration — which is enough for an asset in the tax-law sense.

The units are attributed to whoever controls the private key. The court relied on section 39 of the Fiscal Code here: a person who can actually dispose of the tokens with the private key is treated as their holder for tax purposes, even though civil law recognises no ownership in the classic sense.

The legal position for this type of token is therefore settled, but not by the statute itself. The classification rests on a judgment that interprets a general concept. For other tokens, for example those that represent rights against an issuer, the judgment says nothing.

According to the judgment, the tax administration takes the same view: the Federal Ministry of Finance stated in the proceedings that currency tokens are other assets. We have not read its detailed administrative guidance on individual questions about crypto assets, so its content is not reproduced here.

Every swap is a sale

The most important practical consequence of the judgment concerns swaps. Under its first headnote, currency tokens are acquired when they are obtained in exchange for euros, a foreign currency or other virtual currencies. They are disposed of when they are exchanged back into euros or a foreign currency, or into other tokens.

Swapping Bitcoin for Ether is therefore two transactions in one: the disposal of the Bitcoin given up and the acquisition of the Ether received. The holding period ends for the units handed over, and the new units start a period of their own on the day of the swap.

Anyone who moves between tokens several times within a year thus creates several separate transactions for tax purposes, even though no money ever reaches a bank account. The case shows this clearly: the taxpayer had swapped twice during the year before converting back into euros.

On a swap, the disposal price is the value of what is received. The statute does not regulate valuation on an exchange expressly at this point; it only speaks in general terms of the disposal price and the acquisition costs. How the market value is established in detail remains a matter of practice and evidence.

Not every change of storage location is a swap, however. Moving units from a trading platform to one's own wallet does not give them away for consideration. On the wording used by the court, what is missing is a transfer for consideration to another person, which is what the judgment describes as a disposal.

Twelve months — and the open question of ten years

For other assets, section 23(1) sentence 1 no. 2 sets a period of one year between acquisition and disposal. Anyone who holds a unit for more than a year and then sells or swaps it realises no taxable gain from a private disposal transaction.

The period is measured separately for each unit, because every acquisition starts its own clock. Someone who has kept buying over the years therefore holds lots with very different holding periods in the same account — some can be sold tax-free, others cannot.

The fourth sentence of the same number extends the period to ten years. It is triggered once such an asset has served as a source of income and produced income in even a single calendar year. How this extension works in general is explained in the property course, using the example of assets that are let.

For crypto assets the question is whether income from lending or staking amounts to such use as a source of income. The statute does not answer it expressly: it names neither the lending of tokens nor staking, only the abstract use of an asset as a source of income.

The tax administration has published its own view on this question, which we have not read for this course. We therefore teach only the wording of the statute: anyone who lends or stakes tokens and earns rewards must check whether the ten-year period applies before relying on the single year.

The difference is considerable. With one year, a gain would be tax-free after thirteen months; with ten years, the same gain would be fully taxable. In such a case an enquiry to the tax office or advice from a tax adviser is worth more than any rule of thumb.

A second exception in number 2 concerns everyday items, whose disposal is not caught. The statute does not say whether a token could be one of them; the Federal Fiscal Court, at any rate, classified currency tokens as valuable means of payment and did not treat them as items of everyday use.

Inherited or gifted tokens are not acquired. For this case, subsection 1 sentence 3 attributes the predecessor's acquisition to the individual successor. The period therefore continues from the date on which the donor or the deceased person acquired the units.

Which unit was sold?

Anyone who has bought the same cryptocurrency at different times and prices needs to know which units they are giving up when they sell part of the holding. Two things depend on it: whether the one-year period has expired, and how high the acquisition costs are that are deducted from the proceeds.

Section 23 contains an order-of-use rule, but it is narrowly worded. Under subsection 1 sentence 1 no. 2 sentence 3, where several amounts of the same foreign currency are involved, the amounts acquired first are deemed to be disposed of first. The statute expressly names foreign currency amounts and no other assets.

Whether this rule may be carried over to crypto assets is left open by the wording. The Federal Fiscal Court did compare currency tokens with foreign currencies, but it also held that they are neither money nor electronic money. Section 23 contains no statutory order-of-use rule specifically for tokens.

The administration has also published a view on this question, which is not reproduced here because we have not read it. In practice one rule remains that the statute itself suggests: anyone who cannot document how their units are allocated bears the risk of an estimate that works against them.

Your own records are therefore decisive. For every acquisition, record the date, quantity, price and platform, and the same for every swap and sale. Anyone using several platforms and wallets should choose one consistent method and keep to it over the years.

• set by statute: the one-year period and its extension to ten years
• set by statute: the order-of-use rule for foreign currency amounts, not expressly for tokens
• decided by the Federal Fiscal Court: currency tokens are other assets, and a swap is a disposal
• administrative view, not read here: individual questions on staking, lending and order of use for tokens

Gain, exemption limit and losses on crypto assets

Subsection 3 sentence 1 defines the gain: disposal price minus acquisition costs minus expenses. For tokens, the expenses typically include the fees charged on a sale or swap; fees paid on purchase increase the acquisition costs. Both reduce the taxable amount.

The exemption limit applies to crypto gains just as it does to every other private disposal transaction. Gains stay tax-free if the total gain from such transactions in a calendar year is below 1,000 euros. Anyone who reaches the limit pays tax on the whole amount, not just on the excess.

The limit is not confined to crypto assets. It covers all private disposal transactions of a year together, including for example the sale of gold or of a property within the period. A small crypto gain can therefore become taxable because another transaction is added in the same year.

Losses on tokens stay within the world of section 23. Under subsection 3 sentence 7, they may only be set against gains from private disposal transactions of the same year, not against salary or rental income. Sentence 8 allows a carry-back to the previous year and a carry-forward to later years within this category of income.

A loss only counts if it is realised within the period. Anyone who sells a token at a loss after more than a year has nothing to offset for tax purposes — just as a gain after the period has expired is not caught, the loss is not caught either.

A fall in price alone is not yet a loss either. As long as the units are held, there is neither a disposal nor a swap. Only the transfer against euros, a foreign currency or another token realises the result within the meaning of the provision.

Why no flat-rate withholding tax — and when a business is involved

Crypto gains are not subject to the flat-rate tax on investment income. Section 20 of the Income Tax Act nowhere mentions tokens, and number 7 of its first subsection covers capital claims where repayment or a fee for the use of capital has been promised. A currency token promises repayment to nobody.

The Federal Fiscal Court therefore captured the gains under section 22 no. 2 and section 23, as other income. They are subject to the personal income tax scale and not to the separate rate for investment income; how that separate rate works is explained in the course on investment income.

The consequence cuts both ways. A gain within the period can bear a higher tax burden than interest income for someone with a high income. Once the period has expired, however, it is entirely tax-free — an option that does not exist in this form for investment income held privately.

Finally, section 23 applies only to private assets. Under subsection 2, income from private disposal transactions is allocated to another category of income where it belongs to it: if the tokens are part of a business, that business's rules apply and the one-year period plays no role there.