The EU VAT ruling

The EU Court of Justice ruled yesterday that Bitcoin should not be subject to VAT, in a landmark case which should inject confidence into European crypto-currency markets.

The ruling saw the Court side with Swedish crypto-currency entrepreneur David Hedqvist, who had set up an exchange and argued that the sales tax shouldn’t be charged because it is an exchange of different means of payment, not goods or services.

This is a positive and sensible judgement which puts Bitcoin and other crypto-currencies on an equal footing with sovereign fiat currencies in terms of exchange. Exchanges will not need to charge VAT when selling Bitcoin but there is likewise no right to recover VAT – similar to many other financial transactions. What this certainly does not mean is that other transactions in goods and services that are denominated in Bitcoin will not be subject to VAT; they remain subject to VAT as if they were transacted in any other currency.

This will have implications for the many businesses that have cropped up across the EU for trading crypto-currencies. Some may be owed monies back from their respective tax offices, whilst others will simply be able to operate with greater confidence. In broader terms, this will be positive for the European industry because it will enhance the legitimacy of these currencies, which are still viewed with suspicion in some sectors, by giving them greater legal recognition as valid currencies. This in turn may lead to a boost in investment prospects for the many smaller ventures and start-ups still seeking funding.

Why it will drive adoption

Furthermore, it is even possible that this ruling will lead to an increase in the adoption of major crypto-currencies and as a result increase their market cap. Uncertainty over compliance and legal status have traditionally been balanced against the cost-efficiencies these currencies can provide, particularly for cross-border transactions, so a reduction in these perceived barriers should lead to greater interest and adoption.

At Boston, we expect to see continued growth in crypto-currency adoption as a result of cases such as this one. Whilst the focus of the industry’s conversation in the last year has rightly moved onto innovative non-currency applications of blockchain technology, this doesn’t mean that crypto-currencies are a thing of the past. Whilst they have fallen out of the spot light, they continue to offer the prospect of truly disrupting the global payments industry, a potential which will develop in tandem with other applications of the blockchain – the two are complementary, not exclusive.

If you would like to discuss the implications of this further with our eBusiness team, please get in touch.