German Bitcoin Tax Proposal Would Sting Merchants Twice

Germany's Federal Ministry of Finance, the Bundesministerium der Finanzen (BMF), has published a new document suggesting that the commercial sale of bitcoins should be taxed, a development local sources say has the potential to greatly impact the use of the digital currency as a payment method.

The document

, issued in response to a parliamentary question submitted by Christian Democratic Union (CDU) party member Dr Tim Ostermann, states that the commercial sale of bitcoin is a "miscellaneous service", and thus, needs to be taxed under German law.

As a result of the potential decision, retailers who accept bitcoin would be taxed twice during transactions – firstly, on the sale of goods and, secondly, when they seek to sell bitcoins they accept in purchases.

The news follows the decision by the UK, one of the only countries in Europe to have imposed a value-added tax (VAT) on bitcoin transactions, to drop this policy amid pressure from local enthusiasts and interest groups.

Staunch resistance

Perhaps unsurprisingly, the decision was met with resistance by local trade group Bundesverband Bitcoinhttps://bitcoinfoundation.org/2014/05/20/willkommen-germany-welkom-netherlands/, one of the newest additions to the Bitcoin Foundation's international affiliate programme.

In a lengthy response, the group denounced the idea as one that would discourage the use of bitcoin by traders and online merchants, writing:

"If this kind of taxation stands, it will [hinder] decentralized payment systems [...] in Germany."

Bundesverband Bitcoin said it will seek the support of German retailers to lobby against the proposal by the BMF, potentially looking for intervention from the European Court of Justice, an EU organisation that seeks to establish common laws throughout member states.

Loopholes possible

While a potential issue for small merchants, Bundesverband Bitcoin board member and legal expert Oliver Flaskämper suggested that many German businesses would be unaffected by the proposal, should it be formalised, telling CoinDesk:

"Since over 90% of all dealers in Germany work together with payment service providers of the US like BitPay and Coinbase, these transactions are not liable to VAT."

However, Flaskämper is optimistic that the precedent set by the UK would be enough to resolve the matter, adding: "We assume that the opinion of Great Britain will prevail in this matter ultimately".

Fighting for innovation

Though international services could stem the damage of the decision, Mark Preuss, editor and founder of local bitcoin news and information service BTC-Echo, suggested that the law would most importantly impact innovation in Germany:

"This law would only weaken the German high-tech industry. [...] People will use payment processors abroad, and gains will be made by countries that embrace technical innovation."

He concluded by stating that, while the BMF should follow its interpretations of existing law, he hopes the agency puts its responsibility to society and German businesses first.

Reichstag in Berlin via Shutterstock