The Stack Archive

EU rules Bitcoin is a currency, exchanges are VAT-exempt

Thu 22 Oct 2015

The European Union’s Court of Justice (ECJ) has today ruled that Bitcoin is a currency, detailing exchanges that transfer traditional currencies into the crypto-coins for a fee are to be exempt from consumption taxes.

Under the EU rule against value added taxes (VAT) on transfers of “currency, bank notes and coins used as legal tender,” the new call presents an important boost for Bitcoin, erasing related costs for buying and using the virtual funds in Europe – one of the world’s leading trading zones.

Today’s decision concludes a long-standing discord in Europe over how best to regulate Bitcoin. The UK’s tax authorities took the position that it is a currency, while other countries, including Sweden and Germany, believe that Bitcoin is a commodity and transfers should therefore be subject to sales taxes. Poland levied a 23% VAT on all exchanges – maintaining that Bitcoin is an exchangeable product, not a currency.

The current case came forward in response to a request from Bitcoin enthusiast David Hedqvist, who had approached Swedish tax authorities for a decision on whether or not that the exchange of bitcoins into Swedish Krona, and vice versa, would be exempt from VAT.

Although the court ruling is no surprise – following a recommendation from ECJ’s top legal advisors in July – it is welcome news for the European Bitcoin industry which argued that taxes would hand over a competitive advantage to organisations outside of the region.

According to Richard Asquith, VP at tax compliance firm Avalara, the EU call is “the first step in securing Bitcoin’s future as a genuine alternative to national currencies.” However, others are disappointed with the ruling. Jens Bader, chief commercial officer at Secure Trading argued that the distinction should lie in the fact that “Bitcoin exchanges […] are not regulated and licensed financial services. While we call it a ‘currency’, in fact Bitcoin is a tradable commodity, like gold and silver.”

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