A EUROPEAN COURT has ruled that bitcoin is not subject to Value Added Tax (VAT), meaning that the cryptocurrency can be exchanged tax free.
The European Court of Justice (ECJ) ruled on Thursday that bitcoin, along with other virtual currencies, “are exempt from VAT under the provision concerning transactions relating to currency, bank notes and coins used as legal tender”, according to a report at The Financial Times.
The case was brought by Swedish national David Hedqvist, who sought guidance on the VAT question before setting up a bitcoin exchange. The tax authorities told Hedqvist that bitcoin trading should be subject to VAT, but he disagreed and took the matter to court.
“I always felt like this was the only sensible decision,” Hedqvist said after the ruling. “It is important for businesses all over Europe that they finally have clear guidance regarding VAT, and for some this could mean that they will get money back from the tax office.”
The ECJ’s ruling has largely been welcomed, and will boost the UK’s efforts to make the City of London a hub of bitcoin trading. It also sees the digital currency move a step closer to being recognised as legal tender.
Not everyone sees the decision as positive, however. Jens Bader, chief commercial officer at payment management outfit Secure Trading, claimed that it has far-reaching implications for bitcoin and other cryptocurrencies.
“It is a shame to see the ECJ cave in on this issue, and for bitcoin not to be held to universal VAT standards,” he said.
“The question of whether or not bitcoin should be subject to VAT is a simple one: if it is considered a currency it shouldn’t be subject to VAT and if it is considered a product it should be. In my mind, bitcoin is not a currency. It is an exchangeable product – but a product nonetheless – and for that reason I am surprised by the ECJ’s ruling.
“Digital services have created new challenges for governance, and slowly we are coming to terms with these issues. In the same way that a process for regional taxation for digital content was established this year, cryptocurrencies must face the same process.” µ