This post is also available in:

Massive bureaucracy for banks, brokers, and crypto exchanges

Why Automatic Tax Withholding for Bitcoin and Cryptocurrencies Wouldn’t Be as Simple as the Push of a Button

When people discuss a new crypto tax, it often sounds simple:

The investor sells Bitcoin at a profit, the platform automatically withholds taxes, and the government gets its money.

After all, it works that way with stocks, too.

But when it comes to Bitcoin and other cryptocurrencies, the reality is much more complicated.

This is because cryptocurrency assets do not move solely within a closed banking system. They can be transferred from exchange to exchange, from wallet to wallet, abroad, or into self-custody. That is precisely what makes automatic tax withholding so difficult.

The crucial question, therefore, is not just:

Should cryptocurrency be taxed more heavily?

But also:

Who is supposed to calculate, withhold, and remit this tax to the tax authorities?

Two models—two completely different outcomes

In the debate, two things are often conflated.

Model 1: Tax Return Filed by the Investor

The government could eliminate the holding period but continue to collect the tax through individual tax returns.

In that case, the investor would have to calculate and report his or her gains on his or her own.

For banks, brokers, and crypto exchanges, the additional burden would be limited. They might have to report data, but they would not have to calculate each taxable gain themselves or remit the tax.

Model 2: Automatic Withholding of Tax by the Provider

A model in which banks, brokers, and crypto exchanges would have to withhold the tax directly at the time of sale would be significantly more complex.

In that case, these companies would effectively become tax collectors for the government.

You would need to calculate the following for each customer:

• When were the coins purchased?
• At what price were they purchased?
• When were they sold?
• What acquisition costs apply?
• What is the order of consumption?
• Are there any losses that need to be offset?
• Is this an existing property or a new construction?
• Were the coins transferred from another exchange or a private wallet?

This is exactly where the real bureaucratic nightmare begins.

A simple example: Buy on Exchange A, sell on Exchange B

Let’s take an example.

In 2022, Thomas buys Bitcoin on Exchange A.

A few years later, he transfers these bitcoins to his own wallet.

He then sends them to Exchange B and sells them there.

If Stock Exchange B is to automatically withhold taxes, it needs information that it does not have.

All she sees is:

Thomas deposited and sold Bitcoin.

What Stock Exchange B doesn’t automatically know:

• When were the Bitcoins originally purchased?
• At what price in euros were they purchased?
• Were some of them perhaps sold earlier?
• Are they part of the existing inventory?
• Are they tax-exempt or taxable?
• Were the acquisition costs properly documented?

Without this information, Stock Exchange B cannot reliably calculate taxable income.

So she would have to rely on the customer’s information, verify supporting documents, or make general assumptions.

This is no longer just a simple tax deduction.

This is a subsidiary ledger for tax purposes.

Why the stock model can’t simply be copied

Comparing it to stocks is misleading.

Automatic tax withholding works relatively well for stocks because securities are held within a regulated securities account and banking infrastructure.

The bank generally knows:

• the date of purchase
• the purchase price
• the selling price
• the investment income earned
• portfolio transactions

It’s different with cryptocurrencies.

Bitcoin can be self-custodied.

Coins may come from a foreign exchange.

They can be transferred from a private wallet.

They may have been transferred via decentralized platforms.

There is no central registry that has all the purchase data.

That is why the stock market model cannot be applied directly to Bitcoin.

Reporting is not the same as withholding tax

Crypto service providers are already facing extensive obligations.

With MiCAR, anti-money laundering regulations, the Travel Rule, and the new reporting requirements under DAC8 and the Crypto Asset Tax Transparency Act, providers are already required to collect, verify, and report a significant amount of data.

That’s already a lot of work.

But an automatic tax deduction would be a whole different level.

Reporting data means:

The provider submits information to the tax authorities.

To withhold tax means:

The provider calculates the tax itself, collects it from the customer, remits it, and may be liable for any errors.

That’s a significant difference.

Who pays the costs?

Such a system would have to be built and operated on a long-term basis.

Providers would need:

• new IT systems
• tax calculation logic
• Interfaces with Government Agencies
• Procedure for Verifying Purchase Data
• Customer Processes for Documentation
• Support for Questions
• Compliance Staff
• Documentation and Liability Management

These costs aren’t going away.

In the end, they are passed on.

Either through higher trading fees, wider spreads, additional service fees, or less favorable terms.

For large international platforms, such fixed costs are easier to bear.

For smaller German providers, startups, and specialized Bitcoin brokers, these costs would be much harder to bear.

The consequence would be predictable:

More bureaucracy, less competition, and greater market concentration.

Location disadvantage for Germany

A German provider would have to fully comply with German regulations.

A foreign stock exchange outside Germany, on the other hand, would be much more difficult to compel to comply.

Of course, the government can try to exert pressure through regulation, reporting requirements, and European cooperation.

But in practical terms, a simple question arises:

How does Germany intend to compel a foreign platform to automatically withhold taxes from German customers and remit them to the German tax authorities?

If this requirement primarily affects domestic or European providers, it creates a competitive disadvantage.

Customers might switch to foreign providers.

German providers would face higher costs.

Germany would become a less attractive location for crypto service providers.

As a result, a well-intentioned tax rule could ultimately weaken precisely those entities that are regulated, accessible, and subject to oversight in Germany.

Austria shows that it’s possible—but it takes a lot of effort

Austria has already introduced a system under which domestic providers withhold capital gains tax on certain crypto gains for Austrian customers.

The tax rate is 27.5 percent.

Domestic providers such as Bitpanda automatically withhold taxes for Austrian customers. Providers such as 21bitcoin are also listed in overviews as “tax-friendly” brokers.

To the customer, that sounds convenient.

For providers, however, this entails a considerable amount of technical and organizational effort.

Austria, too, had to establish special rules. Not all transactions are equally easy to record. When purchase data is missing, customer information, supporting documentation, or flat-rate procedures are required.

This shows that:

Such a model is not impossible.

But it’s anything but easy.

A lot of effort, little reward?

It is also interesting to look at Austria for another reason.

Despite mandatory crypto taxation, revenue from the crypto capital gains tax in 2024 amounted to only about 33.8 million euros, according to a parliamentary inquiry.

That’s not an amount that would have a noticeable impact on a national budget.

On the other hand, there are significant transition costs for providers, government agencies, and customers.

That is why Germany, too, must ask itself the question:

Is it worth investing in an expensive new deduction system if the expected additional revenue ends up being modest?

Or would it make more sense to take advantage of the international data exchange via DAC8 and CARF—which is going to happen anyway—to improve existing tax enforcement?

The Danger: Bureaucracy Hits the Wrong People

An automatic tax withholding would not only affect speculators.

It would put a strain on the entire infrastructure:

• Banks
• Broker
• Cryptocurrency Exchanges
• Bitcoin Savings Plan Providers
• Startups
• Custodian
• Tax Software Provider
• Customer Service
• Financial Administration

Small providers, in particular, would have little choice.

Either they invest substantial amounts in new systems.

Or they’ll go out of business.

Or they raise fees for customers.

As a result, a new crypto tax would ultimately not only affect investors but also weaken the regulated German crypto market.

Conclusion

A new crypto tax often sounds simple in the political debate.

In practice, it all depends on the model.

If investors were still required to report their profits themselves, the additional burden on banks, brokers, and stock exchanges would be limited.

However, if providers are required to automatically withhold taxes—as is the case with stocks—this creates an entirely different problem.

Then they would have to maintain a separate tax ledger for each client, even though they often don’t have all the necessary information.

With Bitcoin and other cryptocurrencies in particular, there is no closed custody chain like there is with stocks. Coins can move between exchanges, private wallets, and foreign platforms. Purchase data is often missing or requires significant effort to verify.

The costs of software, monitoring, administration, and liability would ultimately fall on customers. Small providers and startups would be particularly affected. Germany would become a less attractive location for regulated crypto service providers.

Austria shows that automatic tax withholding is feasible. But it is resource-intensive, complex, and has so far generated only modest revenue.

Germany should therefore carefully consider whether an expensive, unique national approach really makes sense—or whether the better course of action is to utilize existing reporting requirements and European data exchange to ensure more efficient tax enforcement.

Sources and Further Information

• MiCAR, Regulation (EU) 2023/1114
• Money Transfer Regulation, Regulation (EU) 2023/1113 (“Travel Rule”)
• Anti-Money Laundering Act
• DAC8, Directive (EU) 2023/2226
• Crypto Asset Tax Transparency Act
• Federal Central Tax Office: CARF / DAC8
• European Commission, Impact Assessment SWD(2022) 402
• German Bundestag, BT-Drs. 21/1937
• Letter from the Federal Ministry of Finance dated March 6, 2025, regarding the income tax treatment of cryptocurrencies
• Austrian Federal Ministry of Finance: Tax Treatment of Cryptocurrencies
• Austrian Income Tax Act, § 93(4a) EStG
• Bitpanda Helpdesk: Withholding of Crypto Taxes in Austria
• Austrian Parliamentary Inquiry 1948/AB on Revenue from Crypto Taxes in 2024
• Bitkom Statements on the Crypto Asset Tax Transparency Act
• German Banking Industry Association: Statements on Reporting and Tax Obligations
• BT-Drs. 21/5752 and 21/6112