In North Rhine-Westphalia, tax investigators are currently analysing a large data package from crypto trading. They have legitimate hopes of being able to claim considerable tax debts from profits made with crypto assets. According to the tax authorities in North Rhine-Westphalia, the package comprises almost 4,000 tax cases. „The North Rhine-Westphalian tax investigation department is making progress in the fight against tax evasion on profits in cryptocurrencies,“ rejoiced the State Office for Combating Financial Crime in North Rhine-Westphalia at the end of September.

The authority received the data package from a trading platform in response to a collective request for information. The data covers the entire federal territory. Tax investigators are currently processing it so that it can then be distributed to the relevant authorities nationwide. An initial data package from 2023 proved to be quite fruitful: according to the tax administration, it has so far generated revenues in the „high single-digit millions“. However, the authority expects a significantly higher sum once the ongoing investigations have been completed.

Things are set to become even more uncomfortable in future for crypto asset holders who do not fulfil their tax obligations. Such chance discoveries by tax investigators are likely to be a thing of the past in the foreseeable future. The German parliament is currently debating a law on a fully automated reporting obligation for transactions involving crypto assets to the Federal Central Tax Office. This will transpose the EU Administrative Cooperation Directive DAC 8 (Directive on Administrative Cooperation) into national law. Like all other EU member states, Germany is obliged to do so by the end of 2025. A completely new set of rules will be created in this country: the Crypto Asset Tax Transparency Act (KStTG). The first reports are due from 2027 onwards. All new types of financial products such as e-money, e-tokens and the digital euro are affected.

Capital gains from crypto assets in private assets such as Bitcoin and Ether are subject to the personal income tax rate and must be declared in the tax return. This applies to various forms such as mining, forging, staking or lending of crypto assets in private assets. Unlike in most countries, tax liability in Germany only applies within a speculation period of one year and above the allowance of 1,000 euros. Those who hold the assets for longer are tax-exempt. Losses can be used and offset.

Germany is almost alone in this regulation in international comparison. The far-reaching tax exemption is intended to help establish a market for investors here. According to the 2025 crypto tax study by tax software provider Blockpit, this approach has certainly influenced the behaviour of crypto asset users and has led to investors increasingly pursuing long-term holding strategies.

Nevertheless, experts expect the tax authorities to lose a lot of tax revenue. This became clear in a public hearing of the parliamentary finance committee on the draft bill. Very few crypto asset holders declare their assets to the tax office. In addition, the market is growing explosively. This promises growing tax revenue from this segment in the future.

In response to a parliamentary question from the Left Party, the German government recently remained tight-lipped about the size of the market and did not cite any figures. However, Pierre Georg, Professor of Practice in Digital Finance and Technology at the Frankfurt School of Finance and Director of the Blockchain Centre there, expressed surprise at this in view of the annual Blockpit study. According to the study, around 7 million users in Germany realised crypto gains of 47.3 billion euros in 2024. According to Blockpit, 17.3 billion euros of this was taxable. By the time of the hearing on 13 October, Georg said that gains of around 575 billion euros had already been accumulated this year.

According to estimates by crypto tax software provider Dively and Blockpit, less than 3% of crypto users comply with their tax obligations. However, it became clear during the hearing that there is perfectly adequate software available for providing the tax authorities with the required information. Anyone who wants to take advantage of tax exemption after one year must document their transactions accurately and provide evidence of them to the tax office. Decentralised platforms and wallets are becoming increasingly important in this country, even though centralised exchanges still dominate the market. This makes it more difficult for taxpayers to keep track of things. According to the Blockpit study, investors in the German market now use an average of 5.7 different platforms and wallets. The number has doubled in three years.

Estimates of lost tax revenue vary widely. Blockpit expects a mid-single-digit billion amount for 2024. According to Blockpit, calculations based on various assumptions about taxpayers result in a tax liability of between 4.2 and 7.3 billion euros for 2024. However, the figures are rising significantly: Georg estimates a double-digit billion amount for 2025. Florian Köbler, representing the German Tax Union, was somewhat more cautious in the hearing. He assumes a three-digit million amount.

In future, basic data rather than profits will have to be reported to the Federal Central Tax Office. This includes user identification data, transaction values and types – such as purchases, sales, deposits, withdrawals or airdrops – wallet addresses and cross-border transactions. Providers of crypto services are required to report. Reporting must be automated. Otherwise, the financial administration would not be able to cope with the volume of data. It also became clear during the hearing that only transactions carried out via crypto service providers will be recorded, but not decentralised transactions. No solution has yet been found for the latter.

From the perspective of the tax authorities, the reporting obligation, albeit incomplete, is at least an „aid“ for assessing tax liability in Germany. This is how Michael Schmidt from the North Rhine-Westphalia State Office for Combating Financial Crime described it. At the very least, it makes it clear which transactions have been carried out via exchanges. Tax officials need more data to enforce taxation law.

Matthias Steger from the Institute for Digitalisation in Tax Law expects problems in the exchange of data if the transactions are not converted into clear formats. He predicted that lists of 100,000 transactions would have to be declared. The institute, which is supported by industry, academia and government, is fundamentally positive about technological solutions for greater standardisation in taxation procedures. The government draft is seen as a „new milestone“ in taxation procedures, securing tax revenue and monitoring compliance with sanctions.

However, the institute advocates proportionate regulation: reporting requirements should be eased for those with low trading volumes. In addition, a generous transition period is recommended in order to test the interfaces between business and administration as well as the procedure. This is intended to avoid mistakes of the past. There have been bad experiences with capital gains tax, for example.

Sebastian Becker from the Blockchain Association highlighted the new and far-reaching field that is opening up for taxation and financial administration. The controversial question of the bureaucratic costs of introducing the new systems, which was raised at the hearing, is „a joke“ and therefore does not arise. Digital currencies, private stablecoins, payment mechanisms for Industry 4.0 or CO₂ certificates – there will be a whole host of digital assets, he listed. „The state must prepare itself urgently,“ said Becker. „We need this for Europe's own positioning.“