Many things have been said, written, speculated upon, rumored, and of course imagined when talking about electronic currencies (the vast majority referring to Bitcoin). The instability, the volatility, the uncertainty, and not to mention the early adopters bringing infamy to electronic currencies with their shady business dealings, have given us at least some kind of footing to start creating official policy.
The VAT dilemma began when David Hedquvist, a Swedish software developer and moderator of Bitcoin.se, initiated a legal quest three years ago amidst the uncertainty that surrounded Bitcoin and its treatment with taxation. Armed only with a desire was to launch and operate a legitimate Bitcoin exchange service, Hedqvist raised the issue upon the Swedish Tax Agency whether customers were required to pay VAT on transactions. After receiving vague answers and requesting further clarifications from the Tax Board, they finally replied stating that Bitcoin is a means of payment, meaning the exchange’s operations should be exempt from VAT.
The key aspect here is whether electronic currency was considered a GOOD per sé, or a CURRENCY, a means of payment; and based on that clarification/differentiation how it was going to be taxed by the authorities at both national and European level (we will keep the rest of the world out of the discussion because it doesn’t really affect us here at the moment).
And finally, after much speculation on the regulation of Electronic Currencies in the European Union, last Thursday Advocate General Juliane Kokott emitted her opinions on the subject, indicating that Electronic Currencies shall be exempt from Value Added Tax in Sale and Purchase transactions.
BOOM! NO VAT WHEN BUYING AND SELLING WITH ELECTRONIC CURRENCIES!
The statement from the EU AG created conflicts on interpretation between the Swedish Tax Agency and the Swedish Tax Board, arguing that the EU Directives on the matter were not properly followed.
The Swedish Tax Agency took the case to the Swedish Supreme Administrative Court, and the SSAC will refer to the European Court of Justice to initiate the process of a Preliminary Ruling.
In means of clarification for the non-legal experts among us, via Preliminary Ruling, the ECJ makes a decision on the interpretation of a European Union Law and suggest the final implementation of such said law by each EU countries’ courts.
Through the preliminary ruling, interpretation on Electronic Currencies and the controversy of its taxation were based upon the Directive 2006/112 on the common system of Value Added Tax. The questions posed were if Electronic Currencies constitute a supply of services based on the definition stated on the abovementioned Directive and if such transactions were considered as exemptions according to article 135.1.
As the European Court of Justice must still provide an official decision on the matter, Kokott’s statements are not official, but the ECJ has been known for following their Advocates General’s advice. Her opinion on Electronic Currency and its taxation follows the decision of many member states of exempting those currencies transactions from VAT, states that include Spain, Belgium or the UK.
This whole issue may have many meanings. For starters, Electronic Currencies are here to stay and they seem poised to become a reality on a global scale. We all know that Governments are usually the last ones to accept reality, but given the fact that they are regulating this payment method, gives us a clue about how interesting it is for them for have it under control. Furthermore, we must keep in mind that this VAT-free situation may be reversed at some point in time as countries find a way to tax it and collect some revenue out of the increasing amount of daily transactions, therefore we need to stay updated on this topic and keep educating ourselves when policy decision are leveled.
For more information on this topic, throw a question to www.soaresavila.com, one of the leading law firms in Barcelona working with Bitcoin, blockchain technology and other electronic currencies.