Greens’ push to end German cryptocurrency tax exemption sparks debate

Veronika Rinecker10 hours agoGreens’ push to end German cryptocurrency tax exemption sparks debateThe Greens think the current one-year holding tax exemption for crypto is unfair and are seeking to abolish it.632 Total views29 Total sharesListen to article 0:00AnalysisOwn this piece of crypto historyCollect this article as NFTJoin us on social networksThe debate around taxing cryptocurrencies in Germany is heating up as Alliance90/The Greens (the Green parliamentary group in the German Bundestag) wants to ditch a tax exemption favoring cryptocurrency investments.

In Germany, cryptocurrency taxes are determined by how long an investor has held their crypto. After holding crypto for one year, private investors can realize tax-free trading profits.

The one-year period was created to incentivize long-term investments and, at the same time, increase the attractiveness of Germany as a location for crypto investors. Long-term-oriented investors are thus to be supported, while speculative short-term transactions are less favored.

However, the Greens believe this unique exemption period is unfair, as other financial instruments are subject to a flat 25% capital gains tax, regardless of how long investors hold them.

This proposal has triggered discussions about the potential impact on investment culture, tax fairness and the administration of crypto transactions.Crypto tax exemption not fair, Greens argue

Sabine Grützmacher, a member of the Bundestag for the Greens, defends the proposal and argues for equal conditions for different investment options:

“We are committed to equal conditions for different investment options. The capital gains tax on stock profits has existed since 2009 without a tax-free minimum holding period,” she told Cointelegraph.“Under the ‘level playing field’ concept of fairness, which we agreed on in the coalition agreement, we want to create comparable conditions for all capital investment classes, including crypto assets.”

The Greens classify crypto tokens as capital investments, more comparable to stocks or gold and not as currency.

However, “due to the extremely high volatility of the value of crypto tokens,” Grützmacher says that the party cannot recommend them for investment without significant consumer protections.

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“I do not see any special incentives for tax exemption of profits after a one-year holding period,” said Grützmacher, adding that there is “a need to raise awareness among young people, particularly of the existing risks, especially against the background that so-called influencers sometimes even use paid advertising to overemphasize opportunities.”

Grützmacher emphasized that the Green’s proposal is yet to be decided on and said that any proposal would include a cut-off date, i.e., cryptocurrency purchased before a certain date would still be eligible to be sold tax-free, even after the new law would come into effect.Tax simplification instead of abolition

Not everyone agrees with the Greens’ claim that crypto doesn’t deserve an exemption.

Ulli Spankowski, founder of the crypto trading app Bison and chief digital officer at Boerse Stuttgart Digital, told Cointelegraph the classification of crypto assets in the German tax code is clear.

Under current law, crypto assets are considered “other economic goods” and are thus eligible for tax-free trading after one year — the same standard applies to physical gold. “And that’s a good thing,” according to Spankowski.

Spankowski further claimed that the one-year holding period serves as an important instrument to increase the investor base and has made Germany an attractive location for crypto investors: “A possible abolition of the one-year holding period for capital gains could significantly impact the investment climate in Germany.”

Frank Schäffler, a member of the Bundestag for the Free Democratic Party (FDP), agreed that abolishing the holding period would hamper investment culture in Germany.

“The Greens’ demand would further complicate our tax system. The abolition of the speculation period would mean that crypto profits would always be taxed, even if the crypto assets are held as investment objects for a long time,” Schäffler told Cointelegraph.

According to Schäffler, capital formation should be simplified, and long-term investments should be rewarded, for example, by increasing the tax exemption limit. “With the Growth Opportunities Act, we want to increase the minimal limit for private sales from 600 to 1,000 euros within one year. This law will come into force when the Union [an alliance of the Christian Democratic Union and Christian Social Union] gives up its blocking position in the Bundesrat [the upper house of Germany’s parliament.]”Could the Greens’ proposal pass?

Since the end of 2021, Germany has been governed by a coalition of the Social Democratic Party (SPD), the Greens and the FDP, led by Chancellor Olaf Scholz.

Without the approval of the FDP and SPD, the Greens have little hope of abolishing the crypto tax exemption.

Schäffler said that it is unlikely that the Greens would find the necessary votes to pass the measure: “This change is not possible with the FDP. Therefore, the proposal will not be implemented either.”

Germany’s governing coalition is experiencing a growing rift, particularly between the Greens and the FDP, significantly hindering their ability to find common ground on various policy issues. 

This gridlock stems from their fundamentally different ideologies: The FDP champions free markets, limited government intervention and minimal regulations, while the Greens prioritize government control, subsidies and even bans in some cases.

Every new public dispute between the two parties further exacerbates the situation, making it increasingly challenging to reach sustainable compromises.How could this impact German markets?

Even if the Greens somehow managed to overcome political gridlock within the Bundestag, would abolishing the tax exemption have much of an impact on German markets and investing?

According to Statista’s Consumer Insights, 13% of 18 to 64-year-olds surveyed in Germany in 2023 use or own cryptocurrencies. Two years earlier, it was only 9%. This shows that crypto holders make up a growing share of German investors. For comparison, in 2023, nearly 18% of German investors owned shares of stocks and funds.

While this shows the growing popularity of cryptocurrency among German investors over traditional financial instruments, it also highlights the overall low rate of investment in Germany compared to some of its other European neighbors.

In Sweden, where investing in stocks is mandatory for retirement planning, more than 50% of the Swedish population has invested.

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A change in the law and complete abolition of the holding period will not create incentives to promote a more active investment culture, says Spanowski.“Especially for those investors who want to invest for the long term and provide for their old age, this is an obstacle and contradicts the fundamental political goal of promoting such investments among the population.”

Instead, “the government can create incentives for investors through tax breaks to encourage investment,” Spankowski argued, adding that education initiatives are also crucial.

Spankowki believes that promoting a sensible investment culture in Germany requires various measures to be implemented in cooperation between the government, the financial industry and educational institutions. “For banks and brokers, this means creating a simple and understandable offer for a broad mass of informed end customers to facilitate access to investment products.”# Law# Politics# Europe# Adoption# Germany# Euro# European Union# Bundestag# RegulationAdd reactionAdd reaction