Bitcoin Escapes VAT Thanks to ECJ Ruling

24 November 2015, 14:29

So, are bitcoin exchanges subject to VAT or not? That was the question up for debate until fairly recently. Last Thursday the European Court of Justice finally ruled that bitcoin exchanges should be exempt from VAT within the EU. While most countries didn’t apply VAT, Sweden had decided it wanted to do so.

One resident of Sweden, a certain David Hedqvist, decided he wasn’t happy with that. In response he went to the Swedish High Court to argue his case and reasoning that the bitcoin trades he wanted to make should not be subjected to value-added tax. The Swedish High Court actually agreed with him.

However the tax authorities in that country weren’t happy, so they decided to take things further and appeal to the ECJ – the European Court of Justice – as a final measure to try and turn things around. Unfortunately for them, the ECJ reached their conclusion last week and agreed with Mr Hedqvist. According to them, the VAT Directive highlights currency transactions as being exempt from VAT payments. There are exceptions (aren’t there always?) but bitcoin was not agreed to be one of them.

Therefore bitcoin can happily be traded in the European Union with no amount of VAT due on the trades. This is good news for those with an interest in trading in this virtual currency. There have been many reports made by interested parties this week, celebrating the ruling in depth. Some have even welcomed the bitcoin as an official currency of sorts, now that it is being treated as other currencies are.

However it is worth noting that the bitcoin is treated differently in other parts of the world. Indeed there still seems to be a modicum of confusion throughout Europe on its standing, even though the ruling obviously applies to all EU countries. In terms of countries outside the EU, Australia has decided to implement their GST – Goods and Sales Tax, their version of our VAT – on all transactions involving bitcoins. They’ve pointed out that bitcoins are not recognised as a proper currency or means of payment anywhere in the world for official purposes. Therefore they have a right to apply the GST in their country. No doubt they will continue to do so unless and until the situation changes or is clarified further.

As such, while the ruling at the European Court of Justice has settled matters to some extent in Europe, the position of the bitcoin rumbles on. No doubt we will continue to see it argued over as a currency (or not) in many different ways. But for now at least, no VAT will be applied on transactions made in bitcoins.