EU Court Rules No VAT for Bitcoin Exchanges

     (CN) – The exchange of the digital currency bitcoin is – like all currency-exchange transactions in the EU – exempt from the value-added tax scheme, the European Court of Justice ruled Thursday.
     Before Swedish national David Hedqvist set up shop to provide bitcoin exchange services, he asked Sweden’s revenue commission for its opinion on whether the transactions would be subject to the EU’s value-added tax on goods, commonly called VAT.
     The commission ruled that bitcoins are no different than other forms of legal tender and that, under EU law, their exchange is exempt from VAT in the same way exchanging bank notes and coins is exempt.
     But the Swedish tax authority appealed the commission’s decision, arguing that bitcoins aren’t mentioned in the VAT directive and therefore cannot be considered exempt. Sweden’s administrative court asked the European Court of Justice to weigh in with its interpretation of the VAT law as it relates to the new digital currency.
     In a 6-page opinion, the Luxembourg-based high court noted that like traditional currency, bitcoins have a “bidirectional flow” – exchanged for traditional currency or vice versa – and cannot be characterized as “tangible property” under the VAT directive.
     “Virtual currency has no purpose other than to be a means of payment,” the court wrote.
     “Consequently, the transactions which consist of the exchange of different means of payment do not fall within the concept of the ‘supply of goods’ under the directive. In those circumstances, those transactions constitute the supply of services within the meaning of the VAT directive.”
     The high court added that the reason EU lawmakers exempted currency from the VAT scheme in the first place applies to bitcoin exchanges – namely the difficulty in figuring out the taxable amount and the amount of VAT deductible in fluid financial transactions.

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