LONDON — Europe’s top court has ruled that purchasing bitcoin through exchanges will not be subject to value added tax (VAT) in a decision that has far-reaching implications on the continent for the viability of the world’s most popular cryptocurrency.
The European Court of Justice ruled Thursday that digital currencies like bitcoin should be treated in the same way as fiat currency and consumers should not be taxed when trying to buy or sell them. The Financial Times reports the ECJ said bitcoin transactions “are exempt from VAT under the provision concerning transactions relating to currency, bank notes and coins used as legal tender.”
The ruling comes after its Advocate General Juliane Kokott published an opinion in July urging the court not to impose tax on bitcoin sales and purchases. “I therefore propose that the Court should reply…[that] these operations are exempt from tax under section 135, paragraph 1, point e) of the VAT Directive,” Kokott said.
The case was brought before the court after Swedish man David Hedqvist sought to set up a bitcoin exchange in his home country allowing people to buy and sell bitcoin using Swedish krona. The Swedish Tax Authority referred the issue of whether bitcoin exchanges should be tax exempt to the Court of Justice, asking clarification on two issues:
“Whether or not a service for remuneration rendered by a bitcoin (virtual currency) exchange can be treated as a VAT relevant service; and (2) in case the bitcoin (virtual currency) exchange service is VAT relevant, whether a VAT exemption can be applied.”
The second question has become a moot point after the court ruled that the bitcoin exchange is not a VAT-relevant service. The decision will be good news for the hundreds of bitcoin startups that have sprouted in Europe in the last couple of years. Had the court decided bitcoin should be taxed, it could have had a negative impact on those companies’ competitiveness.
“VAT taxing bitcoin exchange services would impact the competitiveness of startups. If these services are treated taxable, customers will less likely buy or trade with bitcoin due to the higher prices,” Roger van de Berg a tax lawyer at law firm Baker McKenzie in the Netherlands told BusinessInsider ahead of the ruling. “Also, European exchange services will be less attractive for consumers, who will likely buy their bitcoins in third countries where no VAT is due. The “borderless” characteristics of bitcoin make this quite easy.”