European Court exempts bitcoin trade from VAT

Virtual currencies do not fall under goods, so no VAT has to be paid on trading bitcoins. This has been determined by the European Court of Justice. Bitcoins and other virtual currencies should be treated like any other currency, according to the Court.

This adds a new chapter to the global debate about whether bitcoin should be seen as a currency or as a product. A month ago, the Commodity Futures Trading Commission in the US decided that bitcoin should be seen as a product or commodity. In May last year, Japan also classified the currency as a commodity. With the ruling of the European Court, this does not appear to be the case for Europe.

The issue surrounding the treatment of bitcoin and VAT liability was brought before the court by the Swedish tax authorities, because it was of the opinion that a Swedish bitcoin trader, David Hedqvist, had to pay VAT on the purchase and sale of bitcoins. Earlier, a Swedish judge of the Högsta förvaltningsdomstolen or Supreme Administrative Court had told Hedqvist that bitcoin was excluded from VAT. The request for a decision on the handling of bitcoin was submitted to the European Court on June 2, 2014.

With the ruling, the Court equates bitcoins and other virtual currencies to ‘normal’ money. It follows that trading should be treated in the same way as any other trading activity with coins of different origin or forex.