EU Rules Bitcoin is Exempt from VAT

The recent situation in EU on VAT

Until last week there were still different opinions within EU countries whether Bitcoin is exempt from VAT or not. Some countries already came to the same conclusion a long time ago, some kept fighting against it until the end. The ruling in question came from the court case between Skatteverket (Swedish tax authority) and David Hedqvist (a Swedish national and entrepreneur wanting to start a Bitcoin exchange).  Mr Hedqvist requested a preliminary decision from the Swedish Revenue Law Commission in order to establish whether VAT must be paid. According to that commission, Bitcoin is a means of payment and must, consequently, be exempt from VAT. The Swedish tax authority Skatteverket appealed this decision and the final decision was made in Luxembourg by The Court of Justice of the European Union on October the 22nd.

On this topic it seemed that EU countries were divided into 2 – the ones who agreed that Bitcoin is a currency or means of payment and should be exempt from VAT for example – United Kingdom, Finland and The Netherlands. And the ones who saw Bitcoin  as a commodity for example Sweden, Estonia and Germany.

Why was VAT a problem?

In countries that decided that Bitcoin is a commodity and should be taxed just like other goods or services were. So let’s compare that to traditional currencies – if you were running a currency exchange and had to give x amount of tax on every transaction, let’s say 20%. Changing 1000 Dollars to Euros and giving away $200 to the government, you would not be in business for long. Similarly if you were running a shop and accepting Bitcoin as a payment you would essentially have to pay VAT twice – on the goods sold and on the whole amount of Bitcoin received. That sounds crazy, right? Unfortunately this is what was happening until last week. I don’t think that a lot of exchanges or service providers actually paid VAT. Instead companies in countries affected chose not to accept Bitcoin or moved to countries with better legislation. Obviously this did not help the growth and development of Bitcoin in any way.  A lot of companies and customers were missing out due to unclear and faulty legislation.

EU Ruling

On October the 22nd The Court of Justice of the European Union ruled that Bitcoin is exempt from VAT just like the exchange of banknotes and coins. Bitcoin should be looked at as a currency rather than a commodity and should be treated as a means of payment, and as such were protected under the EU VAT directive.

You can read about the full details of the ruling here.

What does this mean for Bitcoin?

This is obviously great news to all Bitcoin enthusiasts, businesses and also the customer. The more popular and easy the use of Bitcoin becomes, the faster this field can develop. So I would like to thank The Court of Justice of the European Union.