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Bitcoins exchange exempted from VAT

An interesting ruling was issued by European Court of Justice (hereinafter also as “ECJ”) on 22th October 2015. ECJ had to answer on question for a preliminary ruling asked referred by Swedish administrative Court and related to VAT on bitcoins exchange into traditional currency (case number C-264/14). Problem raised on the following facts.

Swedish citizen was going to start provide services aimed at the exchange of traditional currency for virtual currency called Bitcoin and vice versa. Before he started his business, he asked Swedish tax commission a question whether he should pay VAT on purchasing and selling bitcoins. This commission said that bitcoin is means of payment used in a manner appropriate to legal tender and, consequently, exchange transactions should be exempted from VAT. However, this opinion was appealed by Skatteverket, Swedish tax office.

ECJ ruled that exchanging traditional currency into bitcoins (and vice versa) is services provided for payment in the meaning of Council Directive 2006/112/EC from 2006 on the common system of value added tax. In ECJ opinion, such transactions are VAT free based on article which concerns “currency, bank notes and coins used as legal tender”.

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