VAT & Buying BTC in Sweden or Poland

[prophetx]

If I set up a company to buy/sell BTC only for trading purposes, when the company purchases bitcoins is there a VAT liability created?  Obviously exchanges do not collect VAT, but was wonder if anyone has insight into this?

Obviously one needs to pay income tax on corporate profits, but I am wonder how the VAT rules work particularly in Sweden and Poland.

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[chemehuevi]

I don't have specific knowledge of VAT in Poland or Sweden (but I know some people who do know more about this ) but it's worth remembering that VAT is an EU-wide system. This means that in principle, bitcoin should be treated the same for VAT purposes all across the EU, including in Sweden and Poland.

However, as national tax authorities are the first to have to respond to new technical developments, they come often come up with different answers in a first stage. We may have to wait until there's a new EU Directive (unlikely) or a court decision of the CJEU (somewhat more likely - a taxpayer can take the initiative here) before we get a single VAT treatment of bitcoin across the EU.

To try to answer your question in the mean time, I need more input (at least) on the following.
1) Are trading bitcoins the only activity of the company?
2) Who are the buyers? Other companies or individuals? Local or international? Or "don't know" because the company would sell on an exchange like mt.gox?
3) Who are the sellers? (Same questions as sub 2)
4) Where would the transactions take place? Locally, in Sweden and in Poland, or abroad on an international exchange?

Feel free to send me a pm so we can mail or skype about this more in detail.

[prophetx]

To try to answer your question in the mean time, I need more input (at least) on the following.
1) Are trading bitcoins the only activity of the company?
2) Who are the buyers? Other companies or individuals? Local or international? Or "don't know" because the company would sell on an exchange like mt.gox?
3) Who are the sellers? (Same questions as sub 2)
4) Where would the transactions take place? Locally, in Sweden and in Poland, or abroad on an international exchange?

Feel free to send me a pm so we can mail or skype about this more in detail.
[/quote]

ok thanks I will send you a PM on monday.

answers are: the US parent would have multiple lines of business but a subsidiary could be set up if needed; the buyer would only be the company; also the company; intl exchanges.  the company would use the funds of investors/owners.

[joesmoe2012]

To try to answer your question in the mean time, I need more input (at least) on the following.
1) Are trading bitcoins the only activity of the company?
2) Who are the buyers? Other companies or individuals? Local or international? Or "don't know" because the company would sell on an exchange like mt.gox?
3) Who are the sellers? (Same questions as sub 2)
4) Where would the transactions take place? Locally, in Sweden and in Poland, or abroad on an international exchange?

Feel free to send me a pm so we can mail or skype about this more in detail.

ok thanks I will send you a PM on monday.

answers are: the US parent would have multiple lines of business but a subsidiary could be set up if needed; the buyer would only be the company; also the company; intl exchanges.  the company would use the funds of investors/owners.
[/quote]

Why take this to PM? I think others (myself included) are interested in what you find out here!

[chemehuevi]

Why take this to PM? I think others (myself included) are interested in what you find out here!

You are absolutely right and conclusions will be posted here - PM is only to be able to quickly discuss some details.
Sharing is caring! 

[prophetx]

If I set up a company to buy/sell BTC only for trading purposes, when the company purchases bitcoins is there a VAT liability created?  Obviously exchanges do not collect VAT, but was wonder if anyone has insight into this?

I live in Sweden. There is no VAT on currency and also not on Gold, but there is VAT on silver.

Note that there is VAT on all sales regardless of currency. If my evil corporation sells you 1 painting in EUR or BTC then I have to pay VAT on that in SEK.

You seem to want to exchange BTC or SEK or PLN or something like that and there is no VAT involved. Think about it, no bank will charge VAT if you exchange EUR for PLN or PLN for SEK.

Haha yea I know it should work like that but you know dealing with governments and bureaucracy, you get stuff that does not make sense occasionally.

[chemehuevi]

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.

[oblongmeteor]

Likely more forward thinking than the rest of Europe... hopefully.

[CYPER]

Awesome post, chemehuevi 

I'm currently researching into the idea of buying some quite expensive mining equipment and the implications of VAT that follows.
I want to register for VAT in my country (UK), so I am not liable for paying VAT on its purchase.
The product this miner will produce is bitcoins, which when sold should not attract VAT as you argued, right?

But I'm unsure of whether:
I will not pay VAT on the purchase of the equipment at all
or
I will have to pay it on collection and then declare it on my VAT return as business related goods and claim it back

Any ideas?

[chemehuevi]

I doubt that getting a VAT number gives you an advantage in that scenario (assuming that getting a VAT number is not mandatory but optional).

Taking my theory developed in my earlier post into account, you would be in the same position as a bank that purchases special computer equipment so it can offer exempt payment services.

That means you have to bear the VAT on the inbound transaction (i.e. buying the rig), without being able to set it off against any VAT on outbound transactions (i.e. selling the mined bitcoins) and without being able to get a refund of the VAT on the rig.

That is of course also exactly the same position you would be in without a VAT number.

For completeness' sake I mention that if you also have (a lot of) outbound transactions that are subject to VAT, you might still be able to recover some VAT on the rig through the "partial exemption" rules, see http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_CL_000857#P42_4728 but you would need to jump through some hoops...

In other words, if trading bitcoins is indeed a VAT exempt activity as I argued earlier, this is a bit of a double-edged sword for miners: no VAT on selling bitcoins, just like banks offering payment services, (good) but you have to bear the VAT on your mining equipment, also just like banks (bad). On the other hand, if the opposite were true, I don't think that would help your business at all...

So... let's hope you get a good deal on the rig 

[CYPER]

Thank you for you reply again

What I seem unaware of is if there is any allowed ratio between VAT you pay to HMRC for your outbound transactions and VAT you recover from HMRC for your inbound transactions
or
in other words how much of the VAT paid for the mining equipment can you recover in relation to the VAT you owe HMRC from your business activities?

If you are a new business and decide to voluntary register for VAT, then you buy expensive equipment to produce goods, but the business fails can you recover all VAT paid for the equipment or just as much as you owe HMRC over the goods you sold, thus getting to a zero amount?