Bitcoin is like traditional currencies (at least under tax lax), the European Court of Justice holds


On October 25, 2015, the European Court of Justice (ECJ) ruled that Bitcoin is like a traditional currency under tax law: the exchange of a tradition currency for Bitcoins is not subject to VAT. Skatteverket v David Hedqvist (Case C‑264/14)

The ECJ answered to a request for a preliminary ruling concerning a preliminary decision referred by the Swedish Supreme Administrative Court (Högsta förvaltningsdomstolen) on whether transactions to exchange a traditional currency for the ‘Bitcoin’ virtual currency or vice versa were subject to value added tax (‘VAT’).

Bitcoin is a virtual currency used, principally, for payments between private individuals via the internet and in certain online shops that accept the currency. The virtual currency does not have a single issuer and instead is created directly in a network by a special algorithm. The system for the ‘bitcoin’ virtual currency allows anonymous ownership and the transfer of ‘bitcoin’ amounts within the network by users who have ‘bitcoin’ addresses.

Mr Hedqvist wanted to provide, through a company, services of exchange of traditional currency for the ‘bitcoin’ and vice versa.

In a decision of 14 October 2013, the Swedish Revenue Law Commission (Skatterättsnämnden) found that a Bitcoin exchange service “constitutes an exchange service effected for consideration”. “The ‘bitcoin’ virtual currency is a means of payment used in a similar way to legal means of payment”, and it could be exchanged tax free.

The Skatteverket (Swedish tax authority) disagreed and appealed against the Revenue Law Commission’s decision to the Swedish Supreme Administrative Court (Högsta förvaltningsdomstolen) arguing that a bitcoin exchange service is subjected to VAT within the EU.

The Supreme Administrative Court decided to stay the proceedings and referred to the EU Court of Justice for a preliminary ruling.

The ECJ ruled that ‘bitcoin’ , “is a direct means of payment between the operators that accept it”, and it is VAT exempted within the meaning of Article 135(1)(e) of the VAT Directive (2006/112/EC), as is the exchange of other digital currencies. The decision may boost confidence in crypto-currencies.

Bitcoin status is a bit more uncertain in the US, where they were recently defined as commodities like gold and silver. See here for more information to this regard.

The CJEU judgment in Case C‑264/14, Skatteverket v David Hedqvist, is available at…

The opinion of the Advocate General Kokott is available at…

(More on Bitcoin is available here)

For more information, Francesca Giannoni-Crystal

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