German VAT Ruling - On what exactly is VAT charged?

[Technomage]

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 ?

We can provide the platform for buying and selling bitcoins that way without a VAT issue. That's exactly the same thing as real exchanges do it, our system is just sort of a dark pool manual exchange where we match our own customers and trade the rest on the exchanges, on behalf of our customers. In this scenario the brokering fee will include VAT and otherwise we need to have nothing to do with VAT. This has been confirmed by the tax administration.

When we sell our own bitcoins, it becomes a different story. In these cases we are simply selling them, paying capital tax if necessary, and hoping for the best. I don't see how any company that owns bitcoins could do any differently. The only other option would be to never sell the coins, because VAT would prohibit selling them profitably.

[davout]

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.

It's not conjecture, until Bitcoin gets a legal status you *have* to consider it to be a generic good/service.

Here's the write-up : https://bitcointalk.org/index.php?topic=78978.msg880342#msg880342

[oblongmeteor]

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.

Agreed. I don't know your exact circumstances or how ruthless your tax authority is, but if it's anything like the ones in the UK or in Germany, I'd be certain to seek legal clarification before you have to file any accounts... things can get very nasty very quickly, even in Finland I imagine.

[Technomage]

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

So you're saying that your company pays VAT on the full value for all company bitcoins sold? Or does your company even hold bitcoins?

[davout]

The only other option would be to never sell the coins, because VAT would prohibit selling them profitably.

Nope, you're wrong, you always have the option to sell them to another company, no need to remind you how VAT works, and how companies don't care about being sold stuff with or without VAT if they can afford to front it up :-)

Agreed. I don't know your exact circumstances or how ruthless your tax authority is, but if it's anything like the ones in the UK or in Germany, I'd be certain to seek legal clarification before you have to file any accounts... things can get very nasty very quickly, even in Finland I imagine.

It's something that all tax authorities have in common.

So you're saying that your company pays VAT on the full value for all company bitcoins sold? Or does your company even hold bitcoins?

When we sold bitcoins through instawire.org we did. Other than that we don't sell them. But we do pay VAT on fees collected in BTC in exchange fees.

[oblongmeteor]

It's not conjecture, until Bitcoin gets a legal status you *have* to consider it to be a generic good/service.

Here's the write-up : https://bitcointalk.org/index.php?topic=78978.msg880342#msg880342

Thanks alot. Although I would say it is up to each member state of the EU to interpret guidance issued from Brussels. Hence each tax authority can have a different outlook on the same assets, services or goods.

[Technomage]

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.

This is a non-issue in Finland. We have consulted the financial regulators in Finland about this and they don't care at all. They only see "euro in, euro out" scenarios as a money transfer business. Both "BTC in, EUR out" and "EUR in, BTC out" scenarios are, as far as they're concerned, uninteresting. We made an extra inquiry about the Bitcoin ATM's and they still do not care. We can freely setup a both ways ATM here with absolutely 0 regulatory issues, at least for now. We'll make do with a one-way Lamassu for now though.

[davout]

Thanks alot. Although I would say it is up to each member state of the EU to interpret guidance issued from Brussels. Hence each tax authority can have a different outlook on the same assets, services or goods.

Are you implying that a normal tax authority could decide on its own to pass on the option of collecting more taxes ? :-)

[Technomage]

Nope, you're wrong, you always have the option to sell them to another company, no need to remind you how VAT works, and how companies don't care about being sold stuff with or without VAT if they can afford to front it up :-)

The big problem I have with the VAT issue is that VAT is always, 100% of the time, payed by the buyer. It's a tax that the buyer pays. Then the seller simply forwards that money the tax people at some point, or deducts it using VAT the company payed itself while purchasing something. If I sell bitcoins as a company on an exchange, there is no way for me to make the buyer pay VAT on that sale. That, I think, is something to think about.

[davout]

This is a non-issue in Finland. We have consulted the financial regulators in Finland about this and they don't care at all. They only see "euro in, euro out" scenarios as a money transfer business. Both "BTC in, EUR out" and "EUR in, BTC out" scenarios are, as far as they're concerned, uninteresting. We made an extra inquiry about the Bitcoin ATM's and they still do not care. We can freely setup a both ways ATM here with absolutely 0 regulatory issues, at least for now. We'll make do with a one-way Lamassu for now though.

If you're doing EUR in, BTC out then you're not proxying.
And if you combine EUR-in, BTC-out AND BTC-in, EUR-out that's equivalent from their PoV to EUR-in, EUR-out.

And if they said there is no need for regulation for you ATM thing that's extremely surprising, I suspect they didn't understand the question, because the money laundering implications of such a device are quite massive. "Oh hey, I can just come up with stashes of dirty cash money, and teleport it to Singapore". Do you have something in writing about this ? Do they actually have authority to exempt you of it ? I'd really recommend to be very very careful. Because they won't care until they start caring because they suddenly changed their minds...

[Technomage]

I'm simply totally unaware of any situation where a company would pay VAT on something they sold if the buyer hasn't payed for the VAT in the first place. In this case it's often impossible for the seller to add VAT (if selling bitcoins on an exchange for example) so I can't see how the tax people could ask for it.

[oblongmeteor]

Thanks alot. Although I would say it is up to each member state of the EU to interpret guidance issued from Brussels. Hence each tax authority can have a different outlook on the same assets, services or goods.

Are you implying that a normal tax authority could decide on its own to pass on the option of collecting more taxes ? :-)

Hahaha - only if we were in a fairytale I think But the classification of things like Bitcoin where there is no unifying guidance from Brussels are at the discretion of the member state. The same applies for things like VAT rates etc.

On a separate note, will you still be running out of Hong Kong when BTC-Central returns?

[davout]

I'm simply totally unaware of any situation where a company would pay VAT on something they sold if the buyer hasn't payed for the VAT in the first place. In this case it's often impossible for the sellers to add VAT so I can't see how the tax people could ask for it.

If, as a company you sell something, the taxman doesn't care whether you actually collected VAT, it's irrelevant to his mission of collecting VAT on the money that came in by the means of sales.

If you do not charge VAT on a sale then it's a net loss for you, unless of course your margin is higher than the applicable VAT rate.

Thanks alot. Although I would say it is up to each member state of the EU to interpret guidance issued from Brussels. Hence each tax authority can have a different outlook on the same assets, services or goods.

Are you implying that a normal tax authority could decide on its own to pass on the option of collecting more taxes ? :-)

Hahaha - only if we were in a fairytale I think But the classification of things like Bitcoin where there is no unifying guidance from Brussels are at the discretion of the member state. The same applies for things like VAT rates etc.

On a separate note, will you still be running out of Hong Kong when BTC-Central returns?

The thing you need to understand is that there is no such thing as "unclassified", if it not explicitly classified, then it is classified in the default shitty category of you-pay-vat-on-each-sale.

And no, we moved the money to France in June 2012 and got a proper financial license through a partnership in December, we'll still be operating legally from France when we reopen.

[Technomage]

And if they said there is no need for regulation for you ATM thing that's extremely surprising, I suspect they didn't understand the question, because the money laundering implications of such a device are quite massive. "Oh hey, I can just come up with stashes of dirty cash money, and teleport it to Singapore". Do you have something in writing about this ? Do they actually have authority to exempt you of it ? I'd really recommend to be very very careful. Because they won't care until they start caring because they suddenly changed their minds...

I have a good contact over there and we have been communicating with email for a couple of years now. He did understand the issue, the authorities in Finland are simply not very interested in Bitcoin yet. Even the tax people have very little in terms of official guidance. But yes he did clearly tell me in an email that the ATM is not interesting to them. They don't see Bitcoin as money so they don't see the machine as an ATM, it's a vending machine. I was very surprised that the bitcoins in, euro out didn't concern him either, but it didn't. For now we're going for a euro in, bitcoins out machine (the Lamassu machine, which we've preordered).

The ATM, or vending machine, will use the same brokering model we've set up with the tax people. The bitcoins are bought at an exchange in real time and we never sell our own bitcoins.

[Technomage]

If, as a company you sell something, the taxman doesn't care whether you actually collected VAT, it's irrelevant to his mission of collecting VAT on the money that came in by the means of sales.

If you do not charge VAT on a sale then it's a net loss for you, unless of course your margin is higher than the applicable VAT rate.

I need to check this out in detail. I find it a bit insane that VAT can be collected if it's technically impossible for the company to add VAT on the selling price when selling the product. This is obviously rarely the case for most situations but in this particular situation it does apply. I need to ask about this issue specifically, from the tax people.

[oblongmeteor]

I have a good contact over there and we have been communicating with email for a couple of years now. He did understand the issue, the authorities in Finland are simply not very interested in Bitcoin yet. Even the tax people have very little in terms of official guidance. But yes he did clearly tell me in an email that the ATM is not interesting to them. They don't see Bitcoin as money so they don't see the machine as an ATM, it's a vending machine. I was very surprised that the bitcoins in, euro out didn't concern him either, but it didn't. For now we're going for a euro in, bitcoins out machine (the Lamassu machine, which we've preordered).

The ATM, or vending machine, will use the same brokering model we've set up with the tax people. The bitcoins are bought at an exchange in real time and we never sell our own bitcoins.

As long as you've got an official response - not a customer service desk response, but an official response from the tax office (usually a written response that comes on headed paper with a reference number) - you'll be fine if anyone contests it.

It's worth remembering; when it comes to money the paper trail is very important.

[Technomage]

From tax people we have official documents approving our main business model, but the discussion with financial regulators has been in email alone. Their interest seems so low that we don't feel like we need official papers from them at this point.

[prophetx]

are you talking about exchanging bitcoins for other money?  typically commercial paper, or i suppose what they are calling private money, which would seem to fall in that same category does not have a sales tax.  Or at least I have never paid a sales tax on stocks, bonds or currency transactions.

now if you are talking about whether you charge VAT on real items and services, that would generally be a Yes unless you fall under any of the exceptions

[prophetx]

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.

It's not conjecture, until Bitcoin gets a legal status you *have* to consider it to be a generic good/service.

Here's the write-up : https://bitcointalk.org/index.php?topic=78978.msg880342#msg880342

Given that the german tax authority falls under the Ministry of Finance, and the MoF calls it private money, what would lead you to believe that a subordinate agency would attempt to redefine that?

“The German Ministry of Finance does not classify bitcoins as e-money or as a functional currency; they cannot be regarded as a foreign currency. Nevertheless they have to be subsumed under the German term of ‘Rechnungseinheit’ as a financial instrument,” Martin Chaudhuri from the Ministry of Finance

http://translate.google.com/#auto/en/Rechnungseinheit

[davout]

Given that the german tax authority falls under the Ministry of Finance, and the MoF calls it private money, what would lead you to believe that a subordinate agency would attempt to redefine that?

“The German Ministry of Finance does not classify bitcoins as e-money or as a functional currency; they cannot be regarded as a foreign currency. Nevertheless they have to be subsumed under the German term of ‘Rechnungseinheit’ as a financial instrument,” Martin Chaudhuri from the Ministry of Finance

http://translate.google.com/#auto/en/Rechnungseinheit

My message did not refer to Germany, see the "<insert country here>" part.

Also, just because a minister says something does not make it a law, merely an interpretation. Maybe the next minister will say the opposite, who knows.
It is a guideline, not a law. In order to become law it has to go through the regular circuit.

I would remain cautious about the whole thing, because right now it's still quite blurry, nothing has been said about the licensing requirements for example, do people who exchange BTC for EUR professionnally or semi-professionnally need a financial license ? Because if you extrapolate the opinion you easily reach the conclusion that yes, to exchange financial instruments as a business you need a license. This sword has two edges.

There has been a ton of hype around this, but the taxman doesn't do hype he does law.
I concur that this is a great thing though, but I'm mildly impressed by this whole thing because once you remove the hype varnish there isn't that much left in terms of cold hard law.

It's a great start, but it's just a start.