A top legal advisor to the European’s highest court has recently recommended that the purchase of digital currencies such as bitcoin should be exempt from VAT.
The European Court of Justice is still considering the application but often follows the advice of its advocated-general so it is quite likely to rule that the purchase of bitcoin should be exempt from VAT, although the court has not stated when it will reach a final decision.
Advocated-general Juliane Kokott came to the conclusion after Sweden asked the European Court of Justice to give it guidance on the tax status of bitcoin as there is currently uncertainty over the VAT treatment. At the time, Sweden’s tax office had challenged a court decision that ruled that bitcoin transactions in the country should be exempt from VAT.
The court adviser seems to agree with a 2014 United Kingdom policy paper on bitcoin which recommended:
“For VAT purposes bitcoin and similar cryptocurrencies will be treated as follows below: this in no way reflects on how they are treated for regulatory or other purposes:
Income received from bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received
Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’
When bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the bitcoins themselves
Charges (in whatever form) made over and above the value of the bitcoin for arranging or carrying out any transactions in bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above
However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place.”
Bitcoin focussed businesses have welcomed the view of Advocate General Juliane Kokott, and it looks like the EU plans to treat bitcoin more as a currency than as a commodity or product. In contrast the IRS in the United States has issued guidance for users to treat it as an asset instead of a currency.
The disparity between how countries best regulate digital currencies is likely to continue for the foreseeable future as they are not easily categorised or controlled, so watch this space!