In a move that brings the virtual currency more in line with traditional cash, the EU’s top court yesterday ruled that transactions in bitcoin should be exempt from value added tax.
The case was fought between Swede David Hedqvist, who developed a service for exchanging traditional currency for bitcoin and vice versa, and Skatteverket, the Swedish Tax Agency.
According to the court, bitcoin could not be characterised as “tangible property”, and the transactions at issue do not fall within the concept of the “supply of good”, so are not taxable.
“The supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa… are transactions exempt from VAT,” the judgment said.
The ruling only applies to exchange of bitcoin for traditional currency, rather than purchases with the virtual currency.
The court agreed with Hedqvist who argued that in the case of exchange transactions, the “difficulties connected with determining the taxable amount and the amount of VAT deductible may be the same,” and so found that excluding bitcoin transactions from tax exemptions would “deprive it of part of its effect”.
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