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.

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[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.

[libcoin]

First a disclaimer - I am speculating and reasoning - but I intend to check up on the gift card thing asap.

The expensive bitcoins you buy are great as they are already taxed - so you only pay the excl VAT price afterwards. If my reasoning stands, this also means that if you buy bitcoins at mt. gox they should in fact add VAT on these, just as if you buy an iTunes song or app.

I just read a bit up on this EU directive: http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/article_1610_en.htm

It states a change in the rules from 2010: Taxation for electronic services is no longer at the country of origin, but in the country of the consumer. Hence there is no difference in in buying or selling outside EU as compared to internally.

As I see it - the important point is to ensure that a bitcoin trade will be seen analogue to the gift card example.

We need an EU clarification on this - And I would like to color the question with the gift card example, the same law should apply there too.

[libcoin]

Correcting what I said before - just found this decision from the Danish TAX authorities:

http://www.skat.dk/SKAT.aspx?oID=1537916

It states that a gift card is not considered a payment for goods before it is used. In the example mentioned in the link when a customer buys a gift card in a Danish shop the shop should not add VAT on it. The customer can then use the gift card in a Swedish shop for buying a pair of boots or to get his money back (!). It is only the Swedish shop that should deduce VAT from selling the boots.

So - gift cards are not barter...

[Raoul Duke]

Correcting what I said before - just found this decision from the Danish TAX authorities:

http://www.skat.dk/SKAT.aspx?oID=1537916

It states that a gift card is not considered a payment for goods before it is used. In the example mentioned in the link when a customer buys a gift card in a Danish shop the shop should not add VAT on it. The customer can then use the gift card in a Swedish shop for buying a pair of boots or to get his money back (!). It is only the Swedish shop that should deduce VAT from selling the boots.

So - gift cards are not barter...

The bolded part... That's the problem. Bitcoins would have to have a fixed value for that to happen. And everybody who would accept bitcoins would have to accept to pay back money for them for whoever wanted.
That would be nice in one way. Everyone would be an exchanger. But I'm not sure Bitcoin really is meant to be like that.
I can see the advantages of using such a system, I just don't see it happening. Who wants to take the risk of offering $x for each current and future bitcoin in existence?

[DublinBrian]

The problems regarding VAT, and the complexity of a barter situation can be avoided if the merchant uses a service like Bit-Pay. In that case the merchant will never receive any actual bitcoins. They receive payment for their goods in euros, krona or whatever. Bitcoin can then be thought of as a payment processor, like Visa.

[libcoin]

@BitcoinTraderIT: Agree, but this is in fact the gift card setup... You buy the right to buy a good from some organization (bit-pay), but which good and when you buy it has not yet been decided. It is decided at the time of delivery, which also is the time where the VAT should be payed - the rationale from the Danish tax authorities is that you don't know at the time of buying which product you end up using your gift card for, and hence you don't know which VAT rate that will apply (in DK the VAT for newspapers and personal transport is 0, 25% for the rest, in Sweden there is another rate for e.g. food). So - bottom line: it is NOT a barter...

@psy: I don't think the fluktuating rate plays a role here. You could easily issue gift cards that would have a higher value on e.g. Wednesdays than on Saturdays (btw - could actually be smart... - need to check if it is actually OK...) the VAT would still be payed from the value of the actual good you buy. Just talked to our local accountant - VAT is for goods not for gift cards and other proof of value. Also note that a gift card in terms of accounting is listed as a debt - you owe the customer.

Finally - gift cards can expire, there is even (in DK) a law that states how long they can last. In that case there is no VAT(!) as there is no goods.

Anyway, the setup you propose - with guaranteed exchange rates, is one I am currently trying to setup

[D.H.]

@libcoin: I have to do some more reading on gift cards but I did find a similar explanation on a Swedish site. I find it really promising that they do have special rules for gift cards and it seems to be simply because a gift card is more similar to a currency than a good. For example, I found the following on a Swedish site (roughly translated):

The sale of gift certificates that do not relate to specific goods or services is a sale of a means of payment and you can not know what VAT rate applicable to the sale.

It is easy to argue that bitcoins are used as a means of payment rather than a good so by that logic the authorities should be able to help us. I will send another mail to the Swedish tax authorities mentioning the comparison to gift cards.

[Technomage]

It is easy to argue that bitcoins are used as a means of payment rather than a good so by that logic the authorities should be able to help us. I will send another mail to the Swedish tax authorities mentioning the comparison to gift cards.

I'm very interested in hearing how the tax authorities respond to this idea. It is certainly logical in some ways. It makes 0 sense to tax Bitcoin as a regular good because it's really not good (pun intended) for anything else other than paying for other goods and services. If that really works then I'm considering doing something along those lines.

I need to probably contact the Finnish tax authorities on my situation as well. I need to make sure whatever I end up using works because I don't want to get in trouble. The brokering system I envisioned before is still my number one plan but I need to recheck on that and explore this gift certificate possibility.

[2weiX]

The problems regarding VAT, and the complexity of a barter situation can be avoided if the merchant uses a service like Bit-Pay. In that case the merchant will never receive any actual bitcoins. They receive payment for their goods in euros, krona or whatever. Bitcoin can then be thought of as a payment processor, like Visa.

that's exactly the point most bitcoin users are missing (and will be for the longest time yet).
bitcoin is a means of MOVING value, not possessing / storing it.

quick OT:

i sell gold and silver via btc and am registered as a "small business" in germany

i use CyPay to forward my BTC to a site where I sell them for €.
for tax purposes, I just note the item, the BTC/USD and the EUR/USD of the sale. thus i can get numbers for my tax report.

i mainly registered because if you move less than 17600€/year, your expenses are deductible and you don't pay any taxes. above that, you can still deduct, but pay 25% speculation tax (special tax on gold/silver slaes) on the net profit (since I always pre- and restock, my expenses always equal my turnaround)

so I use the tax system to my advantage, steadily increasing my stock.

[Raoul Duke]

libcoin, my main point wasn't about the fixed rate. I think the main detractor is that you would be responsible, or the merchants who decide to accept bitcoin, to refund with hard currency, Euros in the case, anyone who wanted to sell bitcoins. Or are you thinking that the only bitcoins mechants would need to be responsible to give the money back are the ones that are actually sold? It could be fairly easy to do that, at least on the "bitcoin gift card" sellers side, given that all the addresses and respective balances are public and available on the block explorer sites. I'm just uncertain how merchants themselves, as the last link on chain, would deal with it.

It was nice of you to give the gift card example. Now i have one more way to look at it with my accountant, one which I haven't thought of before.

Sorry if what I wrote is confusing, English is not my native language and I'm certain some things just get lost in translation.

[libcoin]

@TechnoMage: I just reread your earlier post, and if the gift card analogue does not hold, then your scheme of selling a brokering service will not stand either : Then it is Mt. Gox (or you as local reseller) that would have to add VAT on the product. But again, it is not bartering...

@psy: gift card analogue again - at least in DK you are not obliged to "buy back" a gift card. Whether, on the moving price issue, we need to check this... An accountant friendly question could be if you may issue non price fixed value cards ? (like my earlier cheap Wednesday, expensive Saturday example) You could of course, in a shop setting, implement this as a coupon with different discount on different days, again some questioning to do

[miernik]

Something relevant to the topic:

http://www.out-law.com/en/articles/2012/may/vat-to-be-charged-on-the-issue-of-phone-cards-says-minister/

A quote, read the link for more:

"Single purpose face value vouchers will be taxed when they are issued. A single purpose face value voucher is one that carries the right to receive only one type of goods or services which are all subject to a single rate of VAT.

According to HM Revenue & Customs (HMRC) prepaid telephone cards that can only be used for making calls, electronic download vouchers which can only be redeemed for downloads, electronic apps, file streaming or other electronically supplied services, group discount vouchers which are redeemed for a specific service or goods and vouchers for admission to amusement parks which cannot be exchanged for other goods and services in the park will all be caught by the new rules.

There is no change to the treatment of face value vouchers that can be used to buy more than one type of good or service. For example a book token that can be redeemed for zero rated books or standard rated e-books, will not be a single purpose voucher as it can be redeemed for more than one type of supply and they have different rates of VAT."

What I don't understand is how it is when the voucher code is issued by a non-EU company (for example MtGox Tibanne Ltd Japan), but sold to a customer in the EU?

[Technomage]

I'd like to confirm that the Finnish tax revenue service has given me the green light to start my brokering service. The main question was am I, or am I not buying/selling bitcoins to/from my own pocket. I'm not because my system automatically trades for my clients using Gox/Sango etc. I'm never selling from my own pocket. This is why they allowed me to add VAT to the brokering fee alone, not the total value of bitcoins involved.

My site will actually go up in just a couple of days so the good news came at an opportune time.

[ArticMine]

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.

There is a very critical flaw in this argument especially in the case of Sweden. The "private individual" is no longer a consumer but is in fact a business that is selling Bitcoin and has to register for VAT. Sweden has in fact one of the lowest minimum thresholds for VAT/GST registration in the OECD http://www.oecd.org/dataoecd/12/12/34674438.xls at 30000 SEK or approx 840 BTC at current rates!  In a Bitcoin only economy every transaction would have equally compensating input and output VAT credits and equal amounts of VAT charged by each party effectively negating the VAT.

The bottom line if that if the tax authorities choose to treat Bitcoin as a "digital service" they have essentially created a huge loophole for VAT avoidance simply by registering for VAT and then using Bitcoin for every transaction.

[cande]

In Sweden a "virtual service or work that you receive virtual money for, which can be exchanged for real money" is treated under the normal tax laws, which means that "virtual money that can be exchanged for real money" also should be treated under the normal tax laws, and therefore should virtual money be VAT free.

They can't both have virtual work with IRL tax, and virtual money without IRL tax.

[wareen]

According to BaFin, the German Federal Financial Supervisory Authority, Bitcoin is a token of value intended as a method of payment. This is the official statement of BaFin regarding Bitcoin and the limits of the e-money definition from 22nd of December 2011 (in German):
http://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_111222_zag.html

It's somewhat difficult to translate legal texts, but here's a try:

Factual limits of the e-money definition in the ZAG:

The term e-money was created in accordance with EU legislatory guidelines which cover only parts of the economic phenomenon of e-money. Regardless of whether computer-, server- or card-based electronic tokens function as money in the economic reality, e-money exists only when they are issued in exchange for an amount of money. Only legal tender or other privately issued payment methods which themselves qualify as e-money according to the ZAG are covered here. Hence, by definition, e-money always derives from legal tender or other e-money.
Tokens of value meant to be used as a method of payment which are issued by barter-clubs, private exchange-rings or other payment systems in exchange for real economic goods or services or like for example Bitcoins, which are issued in computer networks without any service in return, are therefore exempt from the definition of e-money, even though they fulfill the same economic function as e-money and have the actual potential of privately issued currencies.

...

Permission-free are only the usage of such tokens of value as a form of payment and their creation. If these tokens of value are themselves used as a commercial subject, the transaction is classified as either a banking business or a financial service, depending on the exact nature of the transaction. Such transactions are principally subject to reservation of authorization. These tokens of value are units of account and qualify therefore readily as financial instruments.

I left out the references to the other German laws and don't quote me on the exact wording but you should get the idea.

From my understanding this officially confirms that Bitcoin is in fact a valid method of payment not subject to VAT, but requiring a banking license or at least a license as a financial service provider as soon as you do anything else with them except mine them or directly pay/accept them for goods or services. This especially concerns holding or transmitting Bitcoins for other people in any form (ie. online wallets, tipping platforms,...) and of course all exchanges.

As much as I dislike the thought of a lot of current Bitcoin sites and business ideas becoming almost impossible to do legally under current German (EU?) law, classifying Bitcoin as a form of payment treated similarly to any other foreign currency but allowing everybody to mine them is probably the only sane way to go from the perspective of the legislators.

[lonelyminer (Peter Šurda)]

wareen,

nice find. However, I think your conclusion is premature. The document and other references do not mention VAT. So the only thing it means that if you pay with bitcoins, or as a merchant accept bitcoins, you do not need a permit in Germany. Which is good. However, it still leaves the question of VAT open. I lean towards the conclusion that the current laws in Germany classify the usage of Bitcoin as barter (Tauschgeschäft) and is subject to VAT. But I'm not a lawyer :-).

[ArticMine]

wareen,

nice find. However, I think your conclusion is premature. The document and other references do not mention VAT. So the only thing it means that if you pay with bitcoins, or as a merchant accept bitcoins, you do not need a permit in Germany. Which is good. However, it still leaves the question of VAT open. I lean towards the conclusion that the current laws in Germany classify the usage of Bitcoin as barter (Tauschgeschäft) and is subject to VAT. But I'm not a lawyer :-).

Thanks wareen for this.

IANAL I disagree the key conclusion is that Bitcoins are financial instruments (Finanzinstrumente) even though Bitcoin does not meet the narrow definition of e-money under the EU directive. This then makes Bitcoins not subject to VAT as financial instruments themselves are not subject to VAT.

[2weiX]

wareen,

nice find. However, I think your conclusion is premature. The document and other references do not mention VAT. So the only thing it means that if you pay with bitcoins, or as a merchant accept bitcoins, you do not need a permit in Germany. Which is good. However, it still leaves the question of VAT open. I lean towards the conclusion that the current laws in Germany classify the usage of Bitcoin as barter (Tauschgeschäft) and is subject to VAT. But I'm not a lawyer :-).

Thanks wareen for this.

IANAL I disagree the key conclusion is that Bitcoins are financial instruments (Finanzinstrumente) even though Bitcoin does not meet the narrow definition of e-money under the EU directive. This then makes Bitcoins not subject to VAT as financial instruments themselves are not subject to VAT.

Let me paint a picture here:

When you buy a piece of cake with EUROs, is the EURO subject to VAT? No, it's the cake that is!
The text (from BaFin, the German SEC) states that Bitcoin is NOT AN E-MONEY, but much like a "local" currency that is treated LIKE MONEY and is thus treated AS MONEY for all intents and purposes that involve the EXCHANGE OF GOODS AND SERVICES.


As soon as they become "financial instruments" (Finanzinstrumente), they are no longer a "local currency".
Instead, you need a license to trade with them, much like any old money changer (or bank) does.
There are varying degrees of licensing that involve different kind of minimum capital requirements (50k to 2mil) and insurance and whatnot.

This ALSO applies if you are not the one trading (ie buying from A, selling to B) but providing the infrastructure (ie bitcoin.de, bitmarket24.eu, etc etc).

So if the Bitcoin is a financial instrument, it CAN NOT be subject to VAT.
Problem is: There is no (ZERO, ZILCH, NADA, ZIP, NIENTE, NIXDA) data on Bitcoin in German Law and/or Tax databases except for that one snippet from BaFin.
So what I think and what you think is highly, to the utmost level, irrelephant - as long as noone as shit on writing from their Finanzamt, Bundesbank or something.

So I have my lawyer and my tax guy (Steuerberater) on that case, we will probably meet up with the bosses of the local IRS branch (Finanzamt) and try to make an arrangement.

Wish me luck :-D

[lonelyminer (Peter Šurda)]

Sadly, I believe there is an unsubstantiated connection. I do not see a reference to UStG, only to KWG.

Currencies are not subject to VAT, but this is only valid for currencies that are legal tender (anywhere, not only the EUR). So if you sell USD in Germany, you do not need to charge VAT. Since Bitcoin is not legal tender anywhere, it is not a currency for the purpose of VAT.

Maybe we can bribe some minicountry to add Bitcoin to the list of what is accepted as legal tender. That would fix the VAT issue.

[2weiX]

Sadly, I believe there is an unsubstantiated connection. I do not see a reference to UStG, only to KWG.

Currencies are not subject to VAT, but this is only valid for currencies that are legal tender (anywhere, not only the EUR). So if you sell USD in Germany, you do not need to charge VAT. Since Bitcoin is not legal tender anywhere, it is not a currency for the purpose of VAT.

Maybe we can bribe some minicountry to add Bitcoin to the list of what is accepted as legal tender. That would fix the VAT issue.

sadly, the UStG only refers to "movable bodily objects" when referring to the USt-free trade.
financial instruments (in any sense) that the BaFin says Bitcoins are aren't subject to VAT neither (ever bought a Dax Call and paid 18% USt/MWSt?)

[lonelyminer (Peter Šurda)]

The German UStG lists exceptions in §4. In Abs. 8 it lists certain financial services. However I do not see the connection between KWG + ZAG on one hand and UStG on the other. Merely because it looks like they use the same terms, the does not necessarily mean they use the same definitions.

[2weiX]

The German UStG lists exceptions in §4. In Abs. 8 it lists certain financial services. However I do not see the connection between KWG + ZAG on one hand and UStG on the other. Merely because it looks like they use the same terms, the does not necessarily mean they use the same definitions.

The problem is that noone is sure where to put bitcoin.

currency?
good?
financial instrument?
commodity?

it can be all of that, that's why we love it.
and that's what makes it hard to qualify as either OR.

[Bro]

can't you just do the invoice and other official documents in euros, with the bitcoin amounts "For information only", and say that your customer paid in euros through the company MtGox (for instance) like he would have done through Paypal? Let's just say that the money doesn't reach you until MtGox makes a bank wire


(change euro for £,etc, )

[lonelyminer (Peter Šurda)]

Just a quick update. The office of Frank Schäffler (a member of the German parliament) forwarded me a letter from the German finance ministry dated last week, which says that Bitcoin is not VAT exempt according to §4. In Abs. 8 b UStG, confirming my previous worries. Their main argument is that BTC is not recognised as a legal tender in any country. Even though the letter does not explicitly say whether other exemptions apply, I suspect they don't. So be careful when trading BTC as a VAT registered company in Germany.

[caveden]

Forcing people to pay VAT when selling bitcoins is practically equivalent to forbidding official exchanges and pushing every exchange either to another jurisdiction, or to the black market.

I really hope they don't actually try to enforce what they told you, and that they eventually come to their senses and change their stance.

[Moebius327]

Regulations are coming and pirateat40 was just the beginning of the government's PR campaign.

[Hermel]

Just a quick update. The office of Frank Schäffler (a member of the German parliament) forwarded me a letter from the German finance ministry dated last week, which says that Bitcoin is not VAT exempt according to §4. In Abs. 8 b UStG, confirming my previous worries. Their main argument is that BTC is not recognised as a legal tender in any country. Even though the letter does not explicitly say whether other exemptions apply, I suspect they don't. So be careful when trading BTC as a VAT registered company in Germany.

This is indeed bad news. However, there is hope. Let's have a quick look at what §4 Abs 8 b says:

b) die Umsätze und die Vermittlung der Umsätze von gesetzlichen Zahlungsmitteln. Das gilt nicht, wenn die Zahlungsmittel wegen ihres Metallgehalts oder ihres Sammlerwerts umgesetzt werden,

"Gesetzliche Zahlungsmittel" refers to official currencies. As long as there is no country that makes Bitcoin an officially accepted currency, this section does help Bitcoin being exempt from VAT.

However, there is another section just below (§4 Abs 8 d). It says:

die Umsätze und die Vermittlung der Umsätze im Einlagengeschäft, im Kontokorrentverkehr, im Zahlungs- und Überweisungsverkehr und das Inkasso von Handelspapieren,

This corresponds to Article 135 d of the VAT directive, which exempts the following from VAT:

transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

Here, it clearly says that payments and transfers ("Umsätze im Zahlungs- und Überweisungsverkehr") are exempt from VAT. The question now is: do Bitcoin transfers and Bitcoin payments qualify as payments and transfers in the sense of this directive?

My hope is that this is indeed the case. I'm Swiss and Switzerland has basically the same clause in its law. I know a VAT tax expert who will provide me with the official comment to the law, which hopefully contains further hints.

[smolen]

I hope some trolling lawyer will try to actually get a VAT refund for exported bitcoins. If this attempt will fail, bitcoin becomes VAT-proof

[jedunnigan]

Posted this on reddit, but it's relevant here as well:

Honestly people have been [relatively] positive about this move by Germany, but I don't think people understand the implications quite yet.

As I see it, this is an indirect attempt to put the brakes on a system of payment processing that has far lower fees then competing systems (credit cards) and is therefore a threat to their survival. This tax heavily favors traditional payment mechanisms (Bitcoin's no-tranaction fee just went out the window), no question. That or Germany is afraid to call it a currency as such, in fear of providing too much legitimacy to the protocol, thus they stuffed it in the only other bucket it could be seen fitting: commodity (aka unit of account). This is why new legislation must be written, simply because it doesn't fit anywhere else... all preexisting laws reduce its accessibility/attractiveness on some level.

There is always the possibilities that they don't completely understand the repercussions of such a ruling, but I doubt it.

[edmundedgar]

Just a quick update. The office of Frank Schäffler (a member of the German parliament) forwarded me a letter from the German finance ministry dated last week, which says that Bitcoin is not VAT exempt according to §4. In Abs. 8 b UStG, confirming my previous worries. Their main argument is that BTC is not recognised as a legal tender in any country. Even though the letter does not explicitly say whether other exemptions apply, I suspect they don't. So be careful when trading BTC as a VAT registered company in Germany.

This is indeed bad news. However, there is hope. Let's have a quick look at what §4 Abs 8 b says:

b) die Umsätze und die Vermittlung der Umsätze von gesetzlichen Zahlungsmitteln. Das gilt nicht, wenn die Zahlungsmittel wegen ihres Metallgehalts oder ihres Sammlerwerts umgesetzt werden,

"Gesetzliche Zahlungsmittel" refers to official currencies. As long as there is no country that makes Bitcoin an officially accepted currency, this section does help Bitcoin being exempt from VAT.

However, there is another section just below (§4 Abs 8 d). It says:

die Umsätze und die Vermittlung der Umsätze im Einlagengeschäft, im Kontokorrentverkehr, im Zahlungs- und Überweisungsverkehr und das Inkasso von Handelspapieren,

This corresponds to Article 135 d of the VAT directive, which exempts the following from VAT:

transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

Here, it clearly says that payments and transfers ("Umsätze im Zahlungs- und Überweisungsverkehr") are exempt from VAT. The question now is: do Bitcoin transfers and Bitcoin payments qualify as payments and transfers in the sense of this directive?

My hope is that this is indeed the case. I'm Swiss and Switzerland has basically the same clause in its law. I know a VAT tax expert who will provide me with the official comment to the law, which hopefully contains further hints.

So this piece
http://www.welt.de/finanzen/article120823372/Zahlungen-mit-Bitcoins-sind-umsatzsteuerfrei.html

...linked from this Reddit thread
http://www.reddit.com/r/Bitcoin/comments/1o7ldb/wow_bitcoin_no_sales_tax_payment_in_germany/

...seems to say that everything's good?

Is this a confirmation of Hermel's speculation that although the sale of Bitcoins isn't VAT-exempt by virtue of being an official currency, it's instead VAT-exempt by virtue of being a means of payment or something?

[2weiX]

What this means is that it works like EVERYTHING else in trading:

If you buy a crate of apples and pay in oranges, you do not pay VAT on the ORANGES, you pay VAT on the APPLES.
The article explicitely states that "When using BTC as a MEANS OF PAYMENT, that PAYMENT is VAT-exempt" - NOT the goods you are buying!

For whatever reason they had to clarify this is beyond me.

[edmundedgar]

What this means is that it works like EVERYTHING else in trading:

If you buy a crate of apples and pay in oranges, you do not pay VAT on the ORANGES, you pay VAT on the APPLES.
The article explicitely states that "When using BTC as a MEANS OF PAYMENT, that PAYMENT is VAT-exempt" - NOT the goods you are buying!

For whatever reason they had to clarify this is beyond me.

I don't think that's right. Conventionally if you sell me a crate of apples and I pay you in oranges, IIUC there are effectively two taxable transactions going on: I'm selling you oranges, and you're selling me apples. So you have to charge me VAT on the apples I'm buying from you, and I have to charge you VAT on the oranges you're buying from me. (The way VAT works we may also get VAT credits that may cancel out, but that's a different issue.)

This is different from what happens if you sell me a crate of apples and I pay you in Euros. So the question was whether bitcoins were going to be treated like oranges or like Euros. Common sense obviously says they should be treated like Euros (or at least like a foreign currency) but it wasn't clear whether the letter of the legislation would allow common sense to apply here.