German VAT Ruling - On what exactly is VAT charged?

[oblongmeteor]

I'm still slightly unclear on exactly where VAT is applied in respect to Bitcoin purchases within Germany. To copy an unanswered question from: http://www.reddit.com/r/Bitcoin/comments/1koasj/germanys_ruling_on_bitcoin_paves_the_way_for_its/ :

Are you applying it to the full face value of the Bitcoin you purchased, or just the profit that resulted? For example; I buy a Bitcoin for 100 EUR and I sell it for 105 EUR. Should I have actually sold my 1 Bitcoin for 124.95 EUR (105 EUR + 19% VAT) or do I sell it for 105 EUR but then give the German government 0.95 EUR (19% of 5 EUR)?

The question is interesting because intrinsically, Bitcoin has no worth other than that which 'the market' attributes it. So, charging VAT on the face value would be akin to charging you 19% more to purchase a gift voucher that you only redeem for the face value. You wouldn't pay 120 EUR for a 100 EUR iTunes voucher, so... where does the VAT apply?

[davout]

This is a very important question that smart people have been asking themselves for a couple of years now.

Theoretically the VAT applies to the full face value.

[Technomage]

The VAT issue has been problematic in the past, but it certainly isn't in Germany anymore. Bitcoin is categorized in the same category as gold and stocks which do NOT have anything to do with VAT (anywhere, pretty much) so the problem has been solved. As for how it works in other VAT countries, that is a different story.

So the VAT does not apply to the full face value in theory or practice in Germany. This should be certain now. VAT only applies to service fees if you do brokering or something like that, but is never applied to full face value. That is the great advantage of Bitcoin being money. Money, moneylike instruments and gold never have VAT anywhere in any situation.

[davout]

The VAT issue has been problematic in the past, but it certainly isn't in Germany anymore. Bitcoin is categorized in the same category as gold and stocks which do NOT have anything to do with VAT (anywhere, pretty much) so the question is pretty much solved. As for how it works in other VAT countries, that is a different story.

Where did you hear that the VAT issue was solved in Germany ?
Where did you hear it was categorized in the same way as gold ?

Maybe I'm wrong here but I don't think that it was part of the whole Germany-recognizes-Bitcoin-as-private-currency thing.

[Technomage]

Where did you hear that the VAT issue was solved in Germany ?
Where did you hear it was categorized in the same way as gold ?

Maybe I'm wrong here but I don't think that it was part of the whole Germany-recognizes-Bitcoin-as-private-currency thing.

Let me answer that in short: you're wrong here. Bitcoin is classified as a monetary instrument in Germany, exactly in the same category as gold and stocks. Capital tax was the focus in these announcements though. I agree that there has not been a statement specifically on VAT but I see no reason to assume that VAT would be handled any differently, it would be ridiculous.

[davout]

Let me answer that in short: you're wrong here. Bitcoin is classified as a monetary instrument in Germany, exactly in the same category as gold and stocks. Capital tax was the focus in these announcements though. I agree that there has not been a statement specifically on VAT but I see no reason to assume that VAT would be handled any differently, it would be ridiculous.

Stocks and gold are not monetary instruments. Financial instruments maybe, monetary instruments I don't think so.
If there hasn't been anything specifically said about VAT I would be extremely cautious, the tax administration might have a very different interpretation of what we both think is common sense.

[Technomage]

Stocks and gold are not monetary instruments. Financial instruments maybe, monetary instruments I don't think so.
If there hasn't been anything specifically said about VAT I would be extremely cautious, the tax administration might have a very different interpretation of what we both think is common sense.

You may have been right, I take my words back. Based on another thread on the forum it seems that Bitcoin, at least for now, is not VAT exempt in Germany. Everything has VAT that isn't explicitly VAT exempt, so it seems that the situation is still crap.

Personally I don't see the VAT issue as especially bad as it only affects professional traders. Exchanges are not affected because they don't sell their own coins, and small time traders aren't either since it's not professional. But I would really like to see Bitcoin treated as money in VAT sense if it is otherwise declared as money. Money never has VAT since it makes no sense to have VAT on a medium of exchange.

Declaring Bitcoin more like money will also increase regulation related stuff around Bitcoin. The least they could do is make it VAT exempt to give us something good.

[oblongmeteor]

So the VAT does not apply to the full face value in theory or practice in Germany. This should be certain now. VAT only applies to service fees if you do brokering or something like that, but is never applied to full face value.

Where exactly do you draw your conclusions from that VAT is charged on the difference rather than the face value? I'm not saying your wrong, it would just be nice for some official statement to this effect. Looking at the articles on the internet that have been covering this (E.g. http://techcrunch.com/2013/08/19/germany-recognizes-bitcoin-as-private-money-sales-tax-coming-soon/) the implication is that VAT is charged on the full face value when the Bitcoin is sold to an 'end user'.

Lumbering a 19% surcharge on top of any BTC sale face value to non-business entities is entirely ludicrous, but then that might have been the point.

[davout]

Exchanges are not affected because they don't sell their own coins

But if you dig just a little deeper you'll find the situation to be even shittier, since a corporation, selling coins through an exchange would, in theory, be required to pay VAT to the state for the sales.

[Technomage]

Remember that VAT, at least in Finland, does not apply at all when the activity is considered small time. Only professional selling applies to VAT at all. Exchanges themselves only broker bitcoins so they don't have to add anything to the full value.

[davout]

Where exactly do you draw your conclusions from that VAT is charged on the difference rather than the face value?

He just took that back, when SMF tells you in red that a reply was posted while you were typing it's for a good reason ;-)

Remember that VAT, at least in Finland, does not apply at all when the activity is considered small time. Only professional selling applies to VAT at all. Exchanges themselves only broker bitcoins so they don't have to add anything to the full value.

Same here. You get VAT exemptions under certain thresholds, but these conditions make building a business around selling coins infeasible in practice.

[Technomage]

But if you dig just a little deeper you'll find the situation to be even shittier, since a corporation, selling coins through an exchange would, in theory, be required to pay VAT to the state for the sales.

I know. Our company is basically ignoring this particular issue. We only pay the capital tax, which is the only tax that makes sense for bitcoins. We are prepared to go to court to argue the ridiculousness of Bitcoin VAT if necessary though.

Do you pay VAT on top of the full value? Does anyone? I don't know of anyone who does that, or has gotten into trouble for not doing that. I'd like to see some examples if there are any, though, so we know if we're talking of a real or a purely theoretical issue.

[Technomage]

That whole VAT thing can be a showstopper if it is strongly enforced. At least for companies. For individuals it doesn't matter that much.

[oblongmeteor]

Remember that VAT, at least in Finland, does not apply at all when the activity is considered small time. Only professional selling applies to VAT at all. Exchanges themselves only broker bitcoins so they don't have to add anything to the full value.

This raises the question; what's the threshold for being considered a 'professional' seller within Finland? In addition, at least in Finland, you seem to be indicating that the current rules preclude any business that actually buys and sells Bitcoins in the same way as Foreign Exchange dealers such as 1st Contact Forex, Transferwise etc do for currency exchanges.

To casual observer it might seem that these punitive taxes are being applied to seriously stunt the spread of Bitcoin to the mainstream.

[Technomage]

This raises the question; what's the threshold for being considered a 'professional' seller within Finland? In addition, at least in Finland, you seem to be indicating that the current rules preclude any business that actually buys and sells Bitcoins in the same way as Foreign Exchange dealers such as 1st Contact Forex, Transferwise etc do for currency exchanges.

To casual observer it might seem that these punitive taxes are being applied to seriously stunt the spread of Bitcoin to the mainstream.

The limit for no VAT is 8500 € in sales and for discount VAT it is 22500 € in sales. Our company is way over any limits but we don't sell bitcoins professionally so we can argue that it's not professional activity. We don't trade or do arbitrage professionally, but we might sell our Bitcoin investments occasionally and then we pay capital tax if we made a profit. That's a sensible way to do it and we are simply forced to trust that a sensible approach will work.

For our Bitcoin brokering service we do pay VAT but that is included in the brokering fee. It has nothing to do with Bitcoin taxes, it's a service fee and you add VAT on all services.

[oblongmeteor]

The limit for no VAT is 8500 € and for discount VAT it is 22500 €. Our company is way over any limits but we don't sell bitcoins professionally at all so we can argue that it's not professional activity. We don't trade or do arbitrage professionally, but we might sell our Bitcoin investments and then we pay capital tax if we made a profit. That's a sensible way to do it and we are simply forced to trust that a sensible approach will work.

For our brokering exchange we do pay VAT but that is included in the brokering fee. It has nothing to do with bitcoins, it's a service fee.

Now that is interesting. If I'm understanding it correctly; you could possibly work around the issue by providing brokerage services, and therefore you may only be due VAT (if any VAT was even applicable) on your service fee. For example; instead of buying Bitcoins and then reselling them (ala the traders on bitbargain, localbitcoins etc), if you were to effectively proxy-purchase from an exchange with your 'service markup' - you would not be liable. You could even route BTC purchased on behalf of your client directly from an exchange to your client and therefore you would be entirely out of reach of VAT since you never actually held the Bitcoins... or am I talking nonsense ?

[davout]

so we know if we're talking of a real or a purely theoretical issue.

It'll become a real issue as soon as it starts actually mattering. If you're small time nobody cares, if you start getting big time you won't find an accountant to sign on your stuff.

For individuals it doesn't matter that much.

Until it starts to matter.

If you're doing business seriously you need to consider all foreseeable risks, and that is one of them.
Because just because you didn't get in trouble today doesn't mean the taxman won't come tomorrow knock on your door and bash your company to nothingness.

This raises the question; what's the threshold for being considered a 'professional' seller within Finland?

That would be specified in the law, in France for example it's around 50kEUR/year which is not much.

In addition, at least in Finland, you seem to be indicating that the current rules preclude any business that actually buys and sells Bitcoins in the same way as Foreign Exchange dealers such as 1st Contact Forex, Transferwise etc do for currency exchanges.

You do not reason with the taxman by using common sense, you use laws.

To casual an extremely paranoid observer it might seem that these punitive taxes are being applied to seriously stunt the spread of Bitcoin to the mainstream.

FTFY


There actually is one correct and sensible way to handle this situation, it is to use the procedure that is present in France (and I assume every civilized country), to ask the tax administration for a formal and binding opinion on a very specific question. In France it's called a "rescrit fiscal" where you ask the taxman to clarify something and take a position. That's where you need to word the question extremely carefully :-)

[davout]

Now that is interesting. If I'm understanding it correctly; you could possibly work around the issue by providing brokerage services, and therefore you may only be due VAT (if any VAT was even applicable) on your service fee. For example; instead of buying Bitcoins and then reselling them (ala the traders on bitbargain, localbitcoins etc), if you were to effectively proxy-purchase from an exchange with your 'service markup' - you would not be liable. You could even route BTC purchased on behalf of your client directly from an exchange to your client and therefore you would be entirely out of reach of VAT since you never actually held the Bitcoins... or am I talking nonsense ?

That is correct, but you're opening yet another can of worms, as "proxying money" is something that is heavily regulated and requires a financial license.

I made a complete write-up in these forums a year or two ago on the state of these questions in Europe, maybe I'll find some motivation at some point to go fish it up.

[davout]

Our company is way over any limits but we don't sell bitcoins professionally so we can argue that it's not professional activity.

If you are a company you are a professionnal, the position you're taking is *extremely* risky.

[oblongmeteor]

Now that is interesting. If I'm understanding it correctly; you could possibly work around the issue by providing brokerage services, and therefore you may only be due VAT (if any VAT was even applicable) on your service fee. For example; instead of buying Bitcoins and then reselling them (ala the traders on bitbargain, localbitcoins etc), if you were to effectively proxy-purchase from an exchange with your 'service markup' - you would not be liable. You could even route BTC purchased on behalf of your client directly from an exchange to your client and therefore you would be entirely out of reach of VAT since you never actually held the Bitcoins... or am I talking nonsense ?

That is correct, but you're opening yet another can of worms, as "proxying money" is something that is heavily regulated and requires a financial license.

I made a complete write-up in these forums a year or two ago on the state of these questions in Europe, maybe I'll find some motivation at some point to go fish it up.

That would be helpful if you find the time. I guess all of this is (sadly) conjecture until an official response is forthcoming from <insert country here> tax authority.