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Author Topic: Bitcoin and VAT in the EU  (Read 19334 times)
libcoin
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March 04, 2012, 09:12:19 PM
 #21

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.
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libcoin
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March 04, 2012, 09:20:26 PM
 #22

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
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March 04, 2012, 11:08:07 PM
 #23

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
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March 04, 2012, 11:36:49 PM
 #24

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.
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March 05, 2012, 09:10:57 AM
 #25

@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 Wink

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March 05, 2012, 09:43:52 AM
 #26

@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):

Quote
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.

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March 05, 2012, 09:55:40 AM
 #27

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.

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March 05, 2012, 11:27:55 AM
 #28

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
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March 05, 2012, 11:36:35 AM
 #29

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. Smiley

libcoin
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March 05, 2012, 04:28:12 PM
 #30

@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 Wink
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May 13, 2012, 04:40:55 PM
 #31

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?

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May 18, 2012, 01:40:58 PM
 #32

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.

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May 19, 2012, 08:57:28 PM
 #33

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.

Concerned that blockchain bloat will lead to centralization? Storing less than 4 GB of data once required the budget of a superpower and a warehouse full of punched cards. https://upload.wikimedia.org/wikipedia/commons/8/87/IBM_card_storage.NARA.jpg https://en.wikipedia.org/wiki/Punched_card
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June 09, 2012, 11:00:21 PM
 #34

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.

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wareen
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June 10, 2012, 09:37:28 AM
 #35

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:

Quote
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.
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June 10, 2012, 07:22:22 PM
 #36

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 :-).
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June 10, 2012, 08:34:09 PM
 #37

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.

Concerned that blockchain bloat will lead to centralization? Storing less than 4 GB of data once required the budget of a superpower and a warehouse full of punched cards. https://upload.wikimedia.org/wikipedia/commons/8/87/IBM_card_storage.NARA.jpg https://en.wikipedia.org/wiki/Punched_card
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June 10, 2012, 08:52:48 PM
 #38

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

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June 10, 2012, 09:08:43 PM
 #39

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.
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June 11, 2012, 05:34:10 AM
 #40

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?)

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