Bitcoin Forum

Answer from the Minister of Finance to questions from the member Nijboer (PvdA) to the Minister of Finance on the rise of Bitcoin as digital currency
(submitted April 10, 2013)

Question 1
Are you familiar with the news item "Bitcoin is investment with unprecedented performance, but limited payment method'? [1]

Answer to question 1
Yes

Question 2
How do you interpret the rise of the digital currency Bitcoin? Do you share the concerns about the stormy rise in value of this payment method linked to the limited supervision on (the safety of) the payment system?

Question 4
What is your view and the view of the Dutch Central Bank (DNB) on the use and emergence of parallel currencies in general?

Answers to questions 2 and 4
The rise of the alternative virtual currency Bitcoin currently mainly appears to be determined by speculative demand for this.

The alternative virtual currency Bitcoin has partly the same and partly different characteristics compared to traditional payment methods. The difference is mainly that the parties involved in traditional payments, such as banks, clearing houses, supervisors and monetary authorities, are lacking in Bitcoin. Its use is not subject to any form of financial supervision from the government and the deposit guarantee scheme does not apply to Bitcoin. In general, the experience of central banks is that alternative, whether or not virtual, currencies have an unstable character, which entails risks for users. However, in my view, there is currently no risk of financial instability, because of its limited size, low degree of acceptance and the limited connection of Bitcoin to the real economy.

Since long term increase in the use of alternative (virtual) currencies is not ruled out, these developments are being tracked by the Dutch Central Bank -
also in the context of the ECB [2].

Question 3
Is it known to you on what scale Bitcoins are being used in the Netherlands and does an estimate exist of the value of Bitcoins in possession of the Dutch?

Answer to question 3
No, as yet, no research has been done in the Netherlands because of the lack of relevance. However, in its publication in October 2012, the ECB  indicated that at that time globally 6.5 million Bitcoins were shared by 10 000 users [3]. Other public sources suggest that there are currently more than 11 million Bitcoins in circulation, with a value of approximately 1 billion euro. A maximum of 21 million can be brought into circulation. From public sources [4] can be derived that the number of Dutch active in the buying and selling of Bitcoins is limited; about 2% of the total number of users (for approximately € 20 million). Now since, in addition to that, these activities primarily seem to have a speculative character, the share of Bitcoin in, and any impact on the real economy is still negligible.

Question 5
Is monitoring and / or investigation carried out on the possible use of Bitcoins as an instrument for laundering of criminal money or hoarding of illicit money?

Question 6
Is it permitted for private parties under European or national law to develop an alternative (digital) currency and and use it commercially (on a large scale)?

Question 7
In your opinion, do the activities as performed by Bitcoin fall under the Financial Supervision Act (Wft) or this a private activity?

Answers to questions 5, 6 and 7
Anyone is free to develop and/or use alternative (digital) products, as long as it does not conflict with the Dutch law, such as the Law on gambling.

The current understanding is that Bitcoin is not electronic money as meant in the Financial Supervision Act, partly because Bitcoins are not issued in exchange for received money and they do not represent a claim on the issuer. Because of this, Bitcoin does not meet at least two of the four requirements set out in the law. Also, Bitcoin is not in any other way a financial product as meant by the law. (Mediation in) the purchase or sale of Bitcoins is not a financial service either, so the Financial Supervision Act does not apply.

With regard to investigation, the FIOD, from its investigative task, has attention to the possible use of Bitcoins in money laundering. Research will
have to show to what degree Bitcoins are being used for criminal purposes and how the FIOD will respond to that in the future. For this, there is a close cooperation with the High Tech Crime Unit of the Police.

Also at the strategic level, there is attention to developments in this area.  For example, there is the cybercrime consultation, chaired by the Department of Security and Justice, in which the Public Prosecution Service, the FIOD and the National Police are represented.

Question 8
What is the status of Bitcoin under Dutch tax law; do taxes have to be paid over sales, wages, profits or capital paid or held in Bitcoins?

Answer to question 8
A taxpayer who has a source of income with activities in the course of trade, such as income from business or income from an activity, will have to pay taxes over that in compliance with the provisions of the Income Tax Act 2001. The fact that the benefits from such a source are calculated using a scheme other than the legal tender in force in our country does not make a difference. Such a benefit in the form of a result in Bitcoins will also lead to taxation. However, the determination of a taxed income will mean that the value of the results achieved in Bitcoins must be converted into an amount in euros. For the wage and sales tax, a similar approach applies.
Finally, I point you to a previously released policy decision on the tax treatment of local money systems where similar problems exist [5].

1
Het Financieele Dagblad.
"Bitcoin is investering met ongekend rendement, maar beperkt betaalmiddel'.
April 9 2013.
2
See ECB report of October 2012 on 'Virtual Currency Schemes',
http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes201210en.pdf
3
ECB report of October 2012 on 'Virtual Currency Schemes',
http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes201210en.pdf
4
http://bitcoinstatus.rowit.co.uk/countryHostsMonth.png
5
Decision of 1 December 2008, no CPP2008/520M, Stcrt. 2008, 243.

"Bitcoin is not in any other way a financial product as meant by the law. (Mediation in) the purchase or sale of Bitcoins is not a financial service either, so the Financial Supervision Act does not apply."

Quite different from the view the U.S. government is taking. It's somewhat unfortunate for those of us living in the U.S. Over-regulating and overtaxing businesses that operate in an increasingly global marketplace is an excellent way to transfer wealth out of the country.

This.

Even if you are resident elsewhere, they still fuck you if you are a citizen.

"Bitcoin is not in any other way a financial product as meant by the law. (Mediation in) the purchase or sale of Bitcoins is not a financial service either, so the Financial Supervision Act does not apply."

Quite different from the view the U.S. government is taking. It's somewhat unfortunate for those of us living in the U.S. Over-regulating and overtaxing businesses that operate in an increasingly global marketplace is an excellent way to transfer wealth out of the country.

This is indeed the most important sentence in the entire document. I think he'll regret including it in the document :)

"Bitcoin is not in any other way a financial product as meant by the law. (Mediation in) the purchase or sale of Bitcoins is not a financial service either, so the Financial Supervision Act does not apply."

Quite different from the view the U.S. government is taking. It's somewhat unfortunate for those of us living in the U.S. Over-regulating and overtaxing businesses that operate in an increasingly global marketplace is an excellent way to transfer wealth out of the country.