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Germany to tax Bitcoins, but how will they know who has them?

Bitcoin
Bitcoins are a virtual currency, but are often represented as actual coins like this one.

The German Finance Ministry has declared that the virtual currency Bitcoin counts as a "unit of account," making it akin to (but still not quite like) other assets — particularly in that it can now be taxed. But there's a problem: since Bitcoin is anonymous, how will they know who to tax?

The Frankfurter Allgemeine, a German paper, reports (via Google Translate) that the ministry was spurred to the decision by parliamentary finance spokesman Frank Schaeffler. Of course, it and other financial institutions (like U.S. regulators and recently even a federal judge) have been considering what to do about the enigmatic currency for a long time.

In Germany, the coins will be considered assets subject to the country's capital gains tax (the same as for sales of stocks and securities) — but only on profits obtained within a year of acquiring the Bitcoins.

For example, if you got some Bitcoins last July, and sold them within a year for a profit (and a hearty one, considering how value jumped for awhile), you would have to pay a 25 percent tax. But if you held onto them until today, you would no longer have to pay that tax, since the money then could be considered a non-taxable "private sale."

There's a problem, though: Bitcoins can be traded anonymously, so the government will rely entirely on people declaring their own Bitcoin holdings, as no other record might exist. It's not unprecedented, though: similar practices exist for things like cash sales, tips and so on.

All this may change as the "crypto-currency" acquires more legitimacy and enters the everyday world as a way to pay for things online. It wasn't long ago that Bitcoins were primarily associated with drug sales on the anonymous "Silk Road" marketplace. But for now, Germany's definition just another step in the growing acknowledgement by the financial powers that be that Bitcoin isn't just for shady Internet dealings.

— via Ars Technica

Devin Coldewey is a contributing writer for NBC News Digital. His personal website is coldewey.cc.