Germany Clarifies Tax Rules on Bitcoin-Backed Loans

Under German law, borrowing against Bitcoin does not trigger a taxable event when the coins are pledged as collateral for a loan. According to the Income Tax Act and the Fiscal Code, crypto assets are considered other assets, and their sale is only taxable if it occurs within one year of purchase.

The Federal Ministry of Finance's circular on crypto assets states that a private disposal transaction requires an exchange of performance, which does not occur when a borrower hands over coins as security for a loan. The lender formally becomes the owner of the pledged coins but they remain attributed to the borrower for tax purposes.

Section 39 of the Fiscal Code attributes assets to their owner, and in the case of a security transfer, the asset remains attributed to the party providing the security. This means that even if the lender liquidates the collateral, it does not trigger a taxable disposal as long as the borrower had held the coins for more than one year.

The real tax event arises when the price falls and the lender is forced to liquidate the collateral, triggering a taxable disposal under section 23 of the Income Tax Act. The attribution of assets under section 39 of the Fiscal Code carries the entire case, ensuring that the borrower's coins remain attributed to them for tax purposes.