Tax Criminal Proceedings for Cryptocurrency - What to Do When the Tax Investigation Authority Investigates

When the Tax Investigation Authority Investigates Crypto Gains

More and more investors are receiving letters from the tax investigation authority regarding gains from cryptocurrency trading. What many underestimate: such a letter is often not merely a routine inquiry from the tax office, but already the initiation of tax criminal proceedings. The difference is decisive - from this moment on, you are no longer just a taxpayer but an accused person with all the rights that entails.

The tax authorities have significantly upgraded their capabilities in recent years. Through collective information requests to trading platforms, international data agreements and blockchain analysis, they obtain so-called control material from which trading activities can be reconstructed.

"The most common mistake is to respond quickly and completely to the tax office in order to cooperate. In tax criminal proceedings, you may thereby be providing the very evidence against yourself."

• →Tom Beisel, Attorney for Tax Criminal Law

When Are Crypto Gains Taxable in Germany?

The central tax reference point for cryptocurrencies is Section 23 EStG, the private disposal transaction. The simplified rule: whoever sells or exchanges a cryptocurrency within one year of purchase and makes a profit must pay tax on it. After the one-year holding period has elapsed, the sale is generally tax-free.

Many investors do not know that not only the classic sale for euros can be tax-relevant, but also the exchange of one cryptocurrency for another, the use of cryptocurrency as a means of payment, income from staking and lending, earnings from mining, and inflows from airdrops and forks.

Criminally, the allegation is usually based on Section 370 AO. What matters here is not just the objective tax shortfall but above all intent - and this is exactly where the defense begins.

Trading Volume Is Not the Same as Profit

A widespread misunderstanding - including among investigating authorities - concerns the difference between trading volume and taxable profit. A high trading volume says nothing in itself about taxable gains or a tax shortfall.

Those who trade actively over years can show a volume in the six or seven-figure range without correspondingly high taxable profits having arisen. Frequently offsetting factors include the acquisition costs of the sold coins, trading and transaction fees, realized losses that can be set off, tax-free disposals after the one-year holding period, and wallet transfers that are wrongly treated as disposals.

The Right to Remain Silent vs. Duty to Cooperate

This is the most important and at the same time most dangerous feature of tax criminal proceedings. Two areas of law collide.

As an accused person in criminal proceedings, you have the right to remain silent. You do not have to incriminate yourself and need not make any statements that could harm you.

At the same time, the parallel tax assessment proceedings continue, in which duties to cooperate exist in principle. If no information is provided here, an estimate of the tax base under Section 162 AO threatens.

Authorities frequently demand very extensive information and documents in such letters - sometimes for considerably more years than the actual criminal allegation covers. Those who answer these questions without review and in full may be providing the authority with the complete factual picture and thus the proof of the offense. Therefore: no substantive response without legal review and knowledge of the file.

The Right Defense Strategy - Step by Step

Step 1: No direct contact with the authority. No independent phone call, no email, no unreviewed submission of documents to the tax investigation authority. All communication should run through the defense lawyer from the start of the mandate.

Step 2: Defense lawyer notification and access to the case file. The first procedural step is to notify the authority of legal representation and request comprehensive access to the case file. Only then can it be established what the authority actually has: what control material exists, which platforms are affected, what data was analyzed, and how the alleged gains were calculated.

Step 3: Secure an extension of the deadline. Deadlines set in such letters are often tight. An extension should be requested until several weeks after complete access to the file. Without knowledge of the file, a substantive response is neither possible nor sensible.

Step 4: Separation of criminal and tax proceedings. In communication with the authority, the two proceedings must be clearly distinguished. In the criminal proceedings, the right to remain silent is exercised. In the tax assessment proceedings, a substantive response is expressly reserved until after access to the file.

Step 5: Secure documents internally, do not hand them over. Tax assessments, transaction histories, wallet overviews and platform data should initially only be compiled and secured internally. They serve your own analysis - not unreviewed submission to the authority.

Why Intent Is the Decisive Defense Ground

Particularly with cryptocurrencies, intent is a strong point of attack for the defense. Tax evasion under Section 370 AO requires that the accused person at least conditionally accepted that taxes would be shortened.

The tax treatment of crypto transactions is highly complex and was legally contested for years. Many investors simply did not know that a crypto-to-crypto exchange or staking income could be tax-relevant. Those who make a mistake in a complex, evolving area of law do not automatically act with intent. This line must be carefully worked out in each individual case.

Possible Outcomes

Depending on the actual tax shortfall and the evidence, different goals come into consideration: discontinuation of proceedings for lack of sufficient proof, discontinuation against a condition, defusing the allegation through lack of intent, correction of an excessive official profit calculation, tax re-declaration and damage repair as a mitigating factor, or limitation to a fine rather than more far-reaching consequences.

Which path is realistic can only be assessed after access to the file and examination of the actual tax shortfall.

Frequently Asked Questions

I have received a letter from the tax investigation authority - do I have to respond immediately?

No. Do not react hastily and do not answer the questions without review. Once tax criminal proceedings have been initiated, you have a right to remain silent. The first step should be to engage a defense lawyer who requests access to the file and has the often tight deadline extended.

The authority is demanding documents for more years than the allegation covers. Do I have to provide everything?

Caution is required here. Often tax criminal proceedings are initiated for specific years while documents are requested for a much longer period. What is subject to the right to remain silent in the criminal proceedings and what must actually be submitted in the tax assessment proceedings must be clearly separated by a defense lawyer.

My trading volume was high - am I automatically in serious trouble?

Not necessarily. Volume is not profit. Acquisition costs, fees, losses and tax-free disposals after the holding period can significantly reduce the actual taxable profit. Official calculations are often approximate and challengeable.

Do I need a lawyer or a tax advisor?

Generally both, but in the right order. First the defense lawyer takes over procedural management and access to the file. Only then can it be assessed whether a tax advisor or specialized crypto tax service needs to be additionally involved for the tax reconstruction.

Have you received a letter from the tax investigation authority regarding cryptocurrency gains, or are tax criminal proceedings already underway?

Attorney Tom Beisel has a precise understanding of both the criminal law and the technical side of crypto trading. He requests access to the file, checks the official profit calculation and develops a defense strategy that addresses the criminal law, tax and economic dimensions together. Get in touch directly - nationwide.