Cryptocurrencies as a method of payment from the perspective of value added tax

5 February 2018 – Many investors in cryptocurrencies have concerns about the income tax treatment of their investment. Beyond this, the perspective of value added tax is also important. This is especially true for contractors who intend to buy or sell products or services in the future for payment in cryptocurrencies.

In October 2015 the European Court of Justice (ECJ) rendered its first decision regarding cryptocurrencies – in this case, bitcoin. In this decision, the ECJ determined that a private “alternative currency” can be equivalent to a “legal method of payment”. This judgement means that private cryptocurrencies are recognised for the purposes of value added tax. Before this judgement, German financial authorities did not consider cryptocurrencies to be methods of payment in the sense defined by the Value Added Tax Act (UStG).

The consequence was that payments in bitcoins or other cryptocurrencies were generally considered to be revenue similar to an exchange. This revenue consists of two transactions subject to taxes (a provision of goods or services and a reward) that, as such, might have negative consequences for value added tax. As a result of the judgement, this transaction is now no longer considered to be revenue similar to an exchange but a standard other provision of goods or services for payment. This change has implications for the income tax treatment of these transactions. German financial authorities and lawmakers are consequently obliged to adopt this interpretation.

Because bitcoin and other cryptocurrencies have been recognised as methods of payment according to Section 14 of the German Value Added Tax Act (UStG), invoices can be issued in bitcoin or another cryptocurrency. Bitcoins are thereby to be treated as a foreign currency and converted according to current prices.

For each transaction, the exchange rate must be determined for both parties – for the contractor who has provided the goods or services, to be included in calculating income tax on the payment; and for the receiver of the goods or services, who must convert the invoice submitted in a cryptocurrency in order to determine the deductible input tax. The exchange rate thereby corresponds to the daily exchange rate of the usual trading platform for cryptocurrencies. The German Federal Ministry of Finance does not publish official exchange rates for cryptocurrencies. Invoicing parties and recipients of goods or services should document the exchange rate on a quotations list.

For contractors who use accrual taxation, what matters is not the exchange rate at the time of collection or invoicing, but the rate at the time of the transaction, which generally corresponds to the time at which goods or services were provided. Changes in the rate between when payment was collected and when goods or services were provided have no implications for the calculation of taxes.


Daniel Reisener
Tel: +49 30 208 88-1168