Bitcoin and VAT in the EU

[D.H.]

I have tried to sort out what applies regarding Bitcoin and VAT in Sweden and since some of the rules regarding VAT are harmonized within EU I thought that I'd share this in order to get some feedback from other EU citizens. These are my conclusions (I'm not an expert in this field so feel free to point out any errors or terms that I use incorrectly):

 * Finansinspektionen ("Financial Services Authority"?) in Sweden tell me that they do not consider Bitcoin a currency.
 * The Swedish Tax Agency tell me that I should treat Bitcoin as an "electronic service".

Everything that is delivered electronically is considered a "service" instead of a "commodity", there are a few differences in taxation but I don't think that's what's important here. What's important is that since Bitcoin is not considered a currency a purchase with bitcoins will be considered barter. In barter, one should look each transaction separately so that if e.g. a customer (private individual) buys a table from a company and pays with bitcoins these 2 transactions should be considered:

 1. The customer bought a table from the company
 2. The company bought some bitcoins from the customer

I the first transaction VAT is added by the company and recorded as output VAT. In the second transaction there is no VAT since the purchase is from a private individual. Later when the company wants to get rid of the bitcoins this will be considered a sale of bitcoins (regardless of whether they are exchanged for some currency or if something is bought using them) and then VAT should be added to the sale and recorded as output VAT.

From what I can understand this is a bit problematic. It will be hard for the company to exchange the bitcoins since they must add VAT (in Sweden this is 25%) to the "sale". No private individual will buy at that price since they can buy from eachother with no VAT. Some other company could possibly buy them since they can deduct the VAT but at some point some company will have to return the bitcoins to an individual.

Have other people in the EU reached similar conclusions? If my conclusions are correct it is a pretty big obstacle in getting merchants to start accepting Bitcoin.

For Swedish readers, I have started a similar topic in Swedish at bitcoin.se.

[lonelyminer (Peter Šurda)]

Hello,

I have been working on a paper about economics of Bitcoin for a while, and this includes taxation. My conclusions, for EU, are identical to yours, so it's encouraging that the official authorities also share the point of view.

I share your worry that VAT makes it problematic. You omitted a third option: a company buys goods from another company. In this case, based on my research, each company charges VAT and then deducts it from their VAT liability to the tax office. So the net tax result is zero, but there's more paperwork.

The most reasonable workaround, in my example: the company that wants to get rid of Bitcoins should sell them on an exchange that is located outside of the EU. Then they don't need to charge VAT, since it's an export.

[D.H.]

Thanks for your answer! It's at least a good thing that we have reached the same conclusions.

The most reasonable workaround, in my example: the company that wants to get rid of Bitcoins should sell them on an exchange that is located outside of the EU. Then they don't need to charge VAT, since it's an export.

That's interesting, sounds like good workaround. I did some quick reading about it and it seems to be important that the bitcoins are sold to a company abroad, not an individual. I am not exactly sure how things work with exchanges like Mt.Gox, do I sell the bitcoins to Mt.Gox. or to the person who placed the buy order?

Also, out of curiosity, what country are you from?

[lonelyminer (Peter Šurda)]

That's interesting, sounds like good workaround. I did some quick reading about it and it seems to be important that the bitcoins are sold to a company abroad, not an individual.

I don't think so, see http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/index_en.htm

Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT.

I am not exactly sure how things work with exchanges like Mt.Gox, do I sell the bitcoins to Mt.Gox. or to the person who placed the buy order?

It looks like it's the buyer that's relevant. But since the country of residence of the buyer is normally not known to the seller, this creates problems. Gox might need to charge VAT on their fees to EU customers (irrespective of whether Bitcoin is or is not VAT exempt), but this is unclear too, because some services provided by companies outside of the EU to EU citizens do need to charge VAT (see EU directive for VAT on electronic services) and some don't.

Also, out of curiosity, what country are you from?

This is a complicated question because I move around and fall under taxation of multiple countries simultaneously. But my tax/legal research of Bitcoin is independent of my private business activities. It concentrates on EU but I include all the countries in the world that I could find references for. At the Bitcoin conference in Prague I spoke to several people who gave me some information about their own experiences, e.g. Pierre Noizat (AKA Boussac on the forum) from France, the Norwegian journalist Morten Most told me about his research, and Meni Rosenfeld told me about his experience in Israel.

[D.H.]

That's interesting, sounds like good workaround. I did some quick reading about it and it seems to be important that the bitcoins are sold to a company abroad, not an individual.

I don't think so, see http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/index_en.htm

Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT.

See this page that your page linked to (section "Supply of services").

The place of taxation is determined by where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service. A distinction must be made between a taxable person acting as such (a business acting in its business capacity) and a non-taxable person (a private individual who is the final consumer).
...
The supply of services between businesses (B2B services) is in principle taxed at the customer's place of establishment, while services supplied to private individuals (B2C services) are taxed at the supplier's place of establishment.

Or does that just apply when both countries are within the EU? I'm not sure.

[caveden]

Paying VAT for every bitcoin transaction is a show stopper. I hope you manage to find good workarounds to this.

[Jon]

Hey, you got to pay for the socialism somehow.

[lonelyminer (Peter Šurda)]

Or does that just apply when both countries are within the EU? I'm not sure.

As far as I remember, the rule for determining location is not specific to intra-EU trades. However, if you sell Bitcoins, it is unclear who the service provider is. It does not necessarily follow that the seller of Bitcoins is the service provider. Purely logically, it should be the miner that reaped the transaction fee. But this is determined randomly. So again it's unclear.

In other words, if you're VAT registered and want to sell Bitcoins to customers who are not, don't. Sell them on the exchanges that are outside of the EU. Then at least you can claim that you exported it and have no information about what happened afterwards. Sorry Intersango :-(.

Paying VAT for every bitcoin transaction is a show stopper. I hope you manage to find good workarounds to this.

Well, it's not like we can magically find something. One way that would fix this is to lobby for changes of laws, regulations, or just get an exception for Bitcoin from the respective regulatory institution. I know that some people are working on it (e.g. Boussac mentioned this in another thread, and some other people mentioned to me privately they are conducting similar efforts in their countries). The other one is to ignore this and expose oneself to prosecution.

[ercolinux]

There is another option (at least in Italy): barter. If you consider BTC as a good you can do a barter with your goods. So no vat is due for the transaction. There is a limit on how much barter you can do if you've a VAT code (is a % of your total incomes).
There still be the problem that you pay VAT when buy the good that you resell and you can do a compensation on that, and that you risk to pay the VAT when change back the BTC.

[D.H.]

There is another option (at least in Italy): barter. If you consider BTC as a good you can do a barter with your goods. So no vat is due for the transaction. There is a limit on how much barter you can do if you've a VAT code (is a % of your total incomes).
There still be the problem that you pay VAT when buy the good that you resell and you can do a compensation on that, and that you risk to pay the VAT when change back the BTC.

Barter was exactly what I wrote about in the original post. Since BTC is considered a good (or actually an electronic service) a transaction where someone pays for something with bitcoins will be considered barter. But, at least in Sweden, you still have to consider VAT when you do barter, you simply treat it as two transactions. Are you really sure that that is different in Italy?

I'm not sure I understood your last sentence completely but the problem arises when a company wants to get rid of the bitcoins. The bitcoins are sold (either as barter or as exchanged for fiat currency) and then VAT must be added to the sale.

[D.H.]

As far as I remember, the rule for determining location is not specific to intra-EU trades. However, if you sell Bitcoins, it is unclear who the service provider is. It does not necessarily follow that the seller of Bitcoins is the service provider. Purely logically, it should be the miner that reaped the transaction fee. But this is determined randomly. So again it's unclear.

If we would actually bring the miner into all of this, wouldn't that simply be considered an intermediary? From my link: "B2C services provided by an intermediary are taxed at the location where the main transaction, in which the intermediary intervenes, is taxable".

But the other part of my quote that I think deserves some more discussion is: "The supply of services between businesses (B2B services) is in principle taxed at the customer's place of establishment, while services supplied to private individuals (B2C services) are taxed at the supplier's place of establishment.". To me that means that if I sell to an individual I still have to add VAT. So I wouldn't be completely comfortable unless it is actually a foreign company that buys from me (one which doesn't directly connect me with a buyer).

[lonelyminer (Peter Šurda)]

Barter was exactly what I wrote about in the original post. Since BTC is considered a good (or actually an electronic service) a transaction where someone pays for something with bitcoins will be considered barter.

There is actually a difference between bartering goods, and bartering services (or barter a good for a service). "A Lawyer's Take On BitCoin And Taxes" by Trace Mayer, J.D. explains some differences, but it's a US centric analysis. In EU it might be different. For example, as you mentioned, the place of delivery is influenced by that. Merely because Bitcoin is transferred electronically it does not follow that selling bitcoins is a provision of service. It depends on how the regulatory body interprets it

But, at least in Sweden, you still have to consider VAT when you do barter, you simply treat it as two transactions. Are you really sure that that is different in Italy?

In other EU countries, as far as I know, barter is not VAT exempt. The HMRC (UK tax office) for example claims this on their website.

[Technomage]

This is a really interesting thread. I know of your site D.H. and as it happens, I'm launching a similar site in Finland right now. My site will have a service to buy and sell bitcoins so I can tell you how I've done it.

Basically I'm not going to be selling or buying bitcoins directly because I would need to add the 23% VAT to the total price. That would make prices ridiculous so it's not acceptable. What I'm setting up is a fixed price Bitcoin brokering service, which means that I'm doing the buying and selling at Mt. Gox / Intersango at the time of purchase and then I add a brokering fee to the price and this fee includes VAT.

There is no way around VAT, at least in Finland, but if I only sell a brokering service then I only need to add the VAT to the service fee.

[lonelyminer (Peter Šurda)]

Basically I'm not going to be selling or buying bitcoins directly because I would need to add the 23% VAT to the total price. That would make prices ridiculous so it's not acceptable. What I'm setting up is a fixed price Bitcoin brokering service, which means that I'm doing the buying and selling at Mt. Gox / Intersango at the time of purchase and then I add a brokering fee to the price and this fee includes VAT.

There is no way around VAT, at least in Finland, but if I only sell a brokering service then I only need to add the VAT to the service fee.

I am still not 100% certain this is the case. I wish it was this easy. If the purchase of Bitcoin from Mt. Gox is treated as an import, then the buyer needs to pay VAT. It might not be you (the broker) who withholds it but the customs office might decide to charge the buyer directly. I really hope this gets clarified soon :-(.

In other words, I tend to agree with you that you should only charge VAT on the service fee (in fact, I think you were the one who pointed out to me in a different thread that I hadn't considered this before). But that does not automatically mean that the buyer is off the hook for VAT.

[D.H.]

Basically I'm not going to be selling or buying bitcoins directly because I would need to add the 23% VAT to the total price. That would make prices ridiculous so it's not acceptable. What I'm setting up is a fixed price Bitcoin brokering service, which means that I'm doing the buying and selling at Mt. Gox / Intersango at the time of purchase and then I add a brokering fee to the price and this fee includes VAT.

Sounds like a plan. I have considered doing something similar but it seems that in Sweden you might need a permit from the Financial Services Authority to run even such a service (i.e. acting as a intermediary, forwarding someones payments etc.). You can apply for an exemption but even that costs some money and the market is very small in Sweden right now so I don't see that it's worth it.

But that's a bit off-topic, my main reason for wanting to get the VAT thing cleared up is to be able to tell Swedish merchants how to work with Bitcoin. I think that's absolutely necessary for Bitcoin to take off.

[D.H.]

I am still not 100% certain this is the case. I wish it was this easy. If the purchase of Bitcoin from Mt. Gox is treated as an import, then the buyer needs to pay VAT. It might not be you (the broker) who withholds it but the customs office might decide to charge the buyer directly. I really hope this gets clarified soon :-(.

Yeah, this sucks. But to the buyer there would be no difference between buying through Technomage and buying directly from Mt.Gox,, right? They might need to pay VAT either way.

[Raoul Duke]

I'm going to sit with an accountant for a day or 2 and try to get to the bottom of this and I'll let you guys know the outcome.

I'm in Portugal and the accountant will advise me accordingly with the Portuguese law, but I'm almost sure that regarding VAT they should be the same for the whole EU, except for the VAT value itself, which varies.

[D.H.]

I'm going to sit with an accountant for a day or 2 and try to get to the bottom of this and I'll let you guys know the outcome.

Sounds great! If they disagree with something that we have concluded in this thread, please make sure that they explain exactly what they think that we misunderstood and point us to some sources.

[libcoin]

OK - just as an example:

Have a look at: http://www.oplevelsesgaver.dk/ (sorry, in Danish guys).

But they sell gift cards for different activities (dinner for two, spa, tastings, travels etc). You pay for the gift card to this shop, and then you later on use it (in another shop) to get a nice dinner for two. Following the analogy of D.H. This would mean that:
1. gift card of 100 EUR is sold to customer - VAT is 20EUR - gift card shop get 80EUR
2. gift card handed in at the restaurant - the price for the dinner is (the value of) the gift card
3. gift card is "sold" back to the gift card shop - for 80EUR, VAT is added - and the gift card shop can subtract that VAT

So - VAT is only added once - no problem. The issue is 2: The restaurant never sold the meal to the customer the meal was sold to the gift card shop!

This mean that if you run a closed loop, you can actually avoid the double VAT. So using bitcoins:

1. 20BTC is sold to the customer at the price of 25BTC as the VAT is added.
2. customer transfers the 20BTC to the restaurant for a dinner (they don't _pay_, they merely transfer them as a "gift card" to the shop keeper to show that they are the ones that were sold the right to a dinner from the gift card shop)
3. The restaurant then transfers the bitcoins to the gift card shop (your bitcoin selling site) as a proof that they did hand out a dinner to the customer, and hence executed the order (remember it is the gift card shop who bought the meal).

So, what happens if someone sells their bitcoins to someone else - well the same as if you sell a gift card to someone else. And if you sell it to a company, they will only pay you 80EUR for it. Unless they can somehow claim that it is a canceled deal where you get your money back.

Just a small twist - if the meal was sold to the gift card shop and contained bad oysters - the customers should make their claim against the gift card shop, not the restaurant, except if they made a contract with the gift card shop that they released them for all possible claims - I guess they do that today for gift card shops - so I guess you should do the same if you want to make solutions for merchants.

[D.H.]

libcoin, do you know that that's how they handle VAT when accepting gift cards or are you just speculating? Seems to be that when the gift card is exchanged for dinner that would be considered barter.

I have a really hard time seeing that the authorities would accept the reasoning that the bitcoins didn't pay the dinner, that it was actually the exchange where I bought my bitcoins that is paying for dinner. Also, I still don't see in step 1 why any individual would pay 25% extra for bitcoins when they instead can buy it from another individual.

Maybe I'm missing something, I skimmed through your post rather quickly.