The Greens’ push to end Germany’s cryptocurrency tax exemption has sparked debate

The debate on taxation of cryptocurrencies is heating up in Germany, as Alliance90/The Greens (the green parliamentary group in the German Bundestag) wants to exempt cryptocurrency investments from taxation.

Crypto taxes in Germany are determined by how long an investor holds their crypto. After holding crypto for about a year, private investors can realize tax-free trading profits.

The one-year period was created to encourage long-term investments and at the same time make Germany attractive as a destination for crypto investors. Long-term oriented investors should be supported, while speculative short-term trades are less favored.

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

This idea has sparked discussions about its impact on investment culture, tax fairness and the governance of crypto transactions.

The Greens argue that exempting crypto from taxes is unfair.

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

We are committed to creating a level playing field for different investment options. Capital gains tax on share gains from 2009. There has been no minimum holding period for duty free,” she told Cointelegraph.

“According to the concept of fairness of the “level playing field”, we agreed in the collective agreement that we want to create equal conditions for all classes of capital investment, including crypto assets.

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

However, “due to the very high volatility of the price of crypto tokens”, Grutzmacher said that the party cannot recommend them for investment without significant consumer protection.

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“I don't see any special incentive to be exempt from tax after one year,” said Grootmacher. So-called influencers sometimes use paid advertising to promote opportunities.

Grützmacher stressed that the green proposal cannot be decided yet and said that any proposal would include a cut-off date, meaning that cryptocurrency purchased before a certain date would still be eligible for tax-free sales, even after the new law would have to take effect.

Tax relief instead of cancellation

Not everyone agrees with the Greens' claim that crypto should not be free.

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

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

Spankowski went on to say that the one-year stay will serve as an important tool to increase the investor base and make Germany an attractive destination for crypto investors.

“A year off for capital gains could have a major impact on Germany's investment situation.”

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

“The Greens want to further complicate our tax system. The abolition of the speculative period means that crypto profits will always be taxed, even if the crypto assets remain long-term investment items,” Schaeffler told Cointelegraph.

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

Will the Greens' proposal pass?

From the end of 2021, Germany will be led by Chancellor Olaf Scholz, a coalition of the Social Democratic Party (SPD), the Greens and the FDP.

Without the approval of the FDP and SPD, the Greens have no hope of repealing the crypto tax exemption.

Scheffler said it was unlikely the Greens would get the necessary votes to pass this measure: “This change is not possible with the FDP.” Therefore, the proposal will not be implemented.

Germany's governing coalition is becoming more and more difficult, especially between the Greens and the FDP, which is creating major obstacles to consensus on various policy issues.

The gulf stems from their fundamentally different ideologies: the FDP champions free markets, limited government intervention and minimal regulation, while the Greens advocate government controls, subsidies and, in some cases, bans.

Each new public dispute between the two parties worsens the situation, making it increasingly difficult to reach a lasting consensus.

How will this affect German markets?

Even if the Greens manage to somehow overcome the political deadlock in the Bundestag, will tax exemptions have much of an impact on German markets and investing?

According to Statista's consumer perception, 13% of 18- to 64-year-olds in Germany will use or own cryptocurrencies by 2023. Two years ago, it was only 9%. This shows that crypto holders are a growing share of German investors. For comparison, in 2023, around 18% of German investors owned stocks and fund shares.

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

In Sweden, it is mandatory to invest in shares for a pension plan, more than 50% of the Swedish population has invested.

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The change in the law and the complete abolition of the holding period will not create an incentive to promote a more active investment culture, says Spanovski.

“Especially for those investors who want to invest for the long term and to meet their old age, this is a hindrance and goes against the basic political goal of promoting such investments among the people.”

Instead, “the government can create incentives for investors through tax breaks to encourage investment,” argued Spankovski, and educational initiatives are also important.

Spankowki believes that fostering a prudent investment culture in Germany requires the implementation of various measures in cooperation between the government, the financial industry and educational institutions. “For banks and brokers, this means creating a simple and comprehensible offering for a wide range of information clients to facilitate access to investment products.”