The Stuttgart tax office recently confirmed the application of extended limited tax liability under Section 2 of the German Foreign Tax Act (Außensteuergesetz, AStG) to a crypto investor who had moved to a low-tax country in a case we handled. The case concerns income from trading in cryptocurrencies as well as from staking and lending, which, in our experience, are the most important use cases affecting almost all crypto investors.
Because it is common for very wealthy crypto investors who earn millions in income from their crypto investments each year to move abroad, there is a lot at stake for these investors. If the tax authorities’ opinion in this individual case becomes generally accepted, investors would still be liable for tax in Germany for up to ten years after moving away.
The key points of the letter
- Crypto trading (Section 23 EStG): Profits from short-term trading in cryptocurrencies are not considered foreign income, as crypto assets cannot be attributed to a specific country. They are therefore subject to extended limited tax liability.
- Staking and lending (Section 22 No. 3 EStG): Whether this income is considered foreign depends on the location of the platforms. German translations of the terms and conditions of the platforms used (e.g., Coinbase, Blockchain.com, Bitstamp, Binance, Nexo, etc.) can be used to verify the location.
However, the letter is only an initial response to a request for binding information and may not yet be a final statement.
Criticism of the German tax office’s opinion
We consider the tax office’s opinion to be unconvincing. In our opinion, the conditions for extended limited tax liability under Section 2 AStG are not met.
No “location” of crypto assets
Crypto assets are digital, intangible economic goods with no physical existence. In our opinion, the term “location” in the law presupposes a physical location (as is the case, for example, with real estate, art, and precious metals), which is not possible with cryptocurrencies. Cryptocurrencies cannot therefore be ‘located’ or “found” anywhere. It is more than doubtful whether the legislator intended to include digital assets such as cryptocurrencies in the regulation at all. We believe not.
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In our opinion, it is therefore important to interpret the term “location” functionally, similar to how the location of the obligor is used as a basis for rights and claims. In our opinion, the decisive factor for cryptocurrencies should therefore be the place of control and a “human” point of reference should be sought – e.g., the taxpayer’s place of residence or tax residence.
Lack of domestic connection
Even if crypto income is not considered foreign, typical “crypto emigration cases” lack a concrete domestic connection. This is because Section 2 of the AStG requires continuing significant economic interests in Germany. However, the typically very wealthy crypto investor leaves Germany completely, meaning they no longer have a residence here, no shareholdings under corporate law, no real estate, etc. Instead, they hold a large crypto portfolio on their cold wallets or foreign exchanges and, if applicable, securities, etc., also with foreign banks. They therefore have no connection whatsoever to their old home country of Germany.
Constitutional concerns
We consider it particularly problematic that, in practice, the tax authorities are completely unable to enforce the possible tax payment. The vast majority of investors will not worry about further taxation in Germany and will not report their income received after leaving Germany to the German tax authorities. The tax office regularly does not know where the taxpayer has moved to (foreign address) and has no realistic means of carrying out an assessment. Only those who are honest and particularly well-informed, who contact the German tax office on their own initiative, would therefore continue to pay taxes in Germany for another ten years.
In technical jargon, these cases are referred to as a so-called structural enforcement deficit, as the actual enforcement of legal regulations systematically fails due to practical and legal hurdles that are already inherent in the law itself. Such a law, which in a sense only affects the honest (or the stupid?), violates the principle of equality (Art. 3 GG) and is therefore invalid.
Comparison of arguments
| Issue | Stuttgart Tax Office | WINHELLER |
| Location of crypto assets | Crypto assets cannot be clearly assigned to any foreign country and are therefore not considered foreign income. They are subject to extended limited tax liability. | Crypto assets are intangible, digital assets with no physical location. A functional interpretation is required: the decisive factor is the place of control, i.e., the taxpayer’s place of residence. |
| Domestic connection (Section 2 AStG) | Significant economic interests exist in Germany due to the crypto income. | No domestic connection exists – the client lives and conducts business exclusively abroad. A domestic connection may not be fictitious if it does not actually exist. |
| Systematics (Section 34d EStG) | No clear allocation of crypto income → therefore no foreign income → taxable in Germany | No allocation possible, digital assets are not documented anywhere → may not automatically lead to domestic income |
| Constitutional law | Not addressed | Extensive interpretation of Section 2 AStG inadmissible. There is a structural enforcement deficit that violates Art. 3 GG. |
Recommendations for crypto investors after moving abroad from Germany
Crypto investors who earn income from crypto investments after moving abroad should carefully consider the tax consequences and closely follow further developments. Our crypto tax experts are happy to provide you with advice and assistance.
Continue reading:
Moving to Switzerland from Germany – Watch out for Tax Pitfalls
German cryptocurrency taxation: Bitcoin, Ether & Co.
