German ministry says Bitcoin ‘unit of account’

The Guardian

Wed, Aug 21, 2013 - Page 15

Germany’s ministry of finance has formally recognized the digital currency Bitcoin as a “unit of account” which can be used for private transactions — meaning that the ministry will now be able to tax users or creators of the four-year-old virtual money.

However, companies wanting to use it for commercial transactions would need permission from the Federal Financial Supervision Authority.

The Frankfurter Allgemeine newspaper reported on the decision, which follows scrutiny of Bitcoin’s potential usefulness as digital money.

Bitcoin is an online token which can be used and exchanged for goods and services in the same way as standard currencies.

However, it has no issuing bank; each is the solution to a complex mathematical problem. Transactions are carried out by transferring a unique number within the Bitcoin network from one electronic “wallet” — on a computer or phone — to another.

Each of the 10 million Bitcoins in existence is presently worth about US$117. New coins are “mined” by setting computers to find new solutions to the math problem.

While not putting Bitcoins on the same footing as formal currencies such as the pound or dollar, Germany’s move does mean that people who have speculated in the online cryptocurrency could be liable for capital gains taxes if they sell them less than a year after acquiring them.

People who have held on to them for longer will not be liable, the ministry told German member of parliament Frank Schaeffler, who raised the question with the ministry. German authorities are trying to work out how — or whether — they could determine taxes due on Bitcoin transactions between individuals.

One key problem would be identifying when users have carried out such transactions, given that Bitcoin wallets are effectively anonymous.

US authorities have also been studying Bitcoin following fears that it could be used for money laundering or passing funds outside tax oversight.

A judge in the US recently ruled that Bitcoin does amount to “a currency or form of money” in a preliminary hearing over a man in Texas, Trendon Shavers, who is accused by the US financial watchdog, the Securities and Exchange Commission, of running a pyramid scheme masquerading as a Bitcoin investment company.

In contrast with Germany, Thailand’s central bank declared last month that it was illegal to trade Bitcoins, use them to buy or sell goods or services in the country, or “move them in or out of the country.”