European Court of Justice: Bitcoin Transactions Exempt From VAT

In rather positive news for the bitcoin community, the European Court of Justice has ruled that currency transactions involving Bitcoin should, like other foreign exchange trades, be exempt from Value Added Tax (VAT), Financial Times reported.

“Transactions to exchange traditional currencies for units of the bitcoin virtual currency (and vice versa) constitute the supply of services” under the bloc’s law “since they consist of the exchange of different means of payment,” the court said and added that as such they are exempt from value-added taxes, Bloomberg reported.

To exclude such transactions from the tax exemptions given to traditional exchanges “would deprive it of part of its effects,” given that the exemption’s aim is to counter “the difficulties connected with determining the taxable amount and the amount of VAT deductible” in cases of taxation of financial transactions, the court said.

The ruling resolves a long-running debate on how to treat the virtual currency – currency or commodity. The Wall Street Journal says that while the UK’s tax authority had taken the position that bitcoin is a currency, tax authorities in some countries, such as Sweden and Germany, had been in favour of it treating it more like a commodity, making transfers of it subject to sales taxes.