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August 01, 2013, 04:41:48 PM |
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Hello, still wanted to add my 2 satoshi as a tax lawyer…
TL;DR There are good legal arguments that selling and buying bitcoins are VAT exempt activities, i.e. exempt payment transactions in the sense of Article 135 (1) (d) of the EU Recast VAT Directive 2006. “Good legal arguments” means that your local VAT authorities may still try to charge you regardless – but you should not face fines or jail time for applying a “thought-out” exemption.
Longer analysis below – putting this up for discussion, not as the definite answer.
Please bear in mind that each area of law uses its own definitions, so the analysis developed below may not be useful in, for example, a discussion about the financial or income tax regulations pertaining to bitcoin.
For VAT purposes, this excerpt from the EU Recast VAT Directive (2006) is crucial:
Article 135
1. Member States shall exempt the following transactions: … (d) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection; (e) transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest; …
I will start with the last paragraph, which exempts currency dealings. Does Bitcoin qualify as a currency for VAT purposes?
According to the Court of Justice of the European Union (CJEU) the words used in the VAT Directive have their own specific meaning under community law. Furthermore, as exceptions to the general rule, the exemptions under Article 135 are to be interpreted strictly.
Now, in the absence of EU (VAT) regulations that define “currency”, we may have a look at a dictionary definition: “currency: a system of money in general use in a particular country (Oxford Dictionary)”. You may find different dictionary definitions but I further assume that most of these will be “traditional”, i.e. connecting the characterization as a currency to use in a particular geographic / political territory.
Looking at a more economic definition, currency or money is usually associated with three different functions: (i) medium of exchange, (ii) unit of account and (iii) store of value.
Bitcoin is certainly a medium of exchange and can also be considered a unit of account. For now however, I do not think that bitcoin is already perceived (by the public at large, not by the people on this forum) as a good store of value. Extreme volatility and a technical implementation that only exists since 2009 and has yet to stand the test of time are the main reasons.
The fact that bitcoin is not yet perceived as a good store of value is also reflected in the way merchants use bitcoin today: bitcoins received are immediately converted into fiat, and/or the transaction bitcoin value is hedged.
Based on the above, I believe that bitcoin can not be considered a currency in the sense of Article 135 (1) (e) – with the caveats that (1) this may change in the future and (2) that bitcoin may be considered a currency for other legal (non-VAT) purposes.
Trading bitcoins may however be considered as exempt transactions concerning payments under Article 135 (1) (e). While not explicitly defined in EU VAT regulations, “transactions concerning payments” is at first sight a relatively wide notion. Issuing multi-purpose vouchers, for example (e.g. certain phone cards that can also be used to pay for public transportation, or specific gift cards that entitle the holder to a choice of different goods / services) is today already accepted by many Member States as the supply of an exempt payment transaction. The fact that bitcoin does not qualify as “e-money” in the sense of the payment services Directive (Directive 2007/64/EC) does therefore not mean that it cannot be considered as a system for exempt payment transactions.
Furthermore, the European Commission has proposed a clarifying regulation pertaining to VAT and financial services which explicitly states that “electronic fund transfers" in general should be considered exempt payment transactions – and if bitcoin does not qualify as a system for the electronic transfer of funds, then what does?
Based on the above, and in the absence of more detailed rules, I conclude - for now - that there is a good case for a VAT exemption on trading bitcoins, perhaps not as exempt currency dealing, but rather as the exempt supply of an electronic payment service.
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