CJEU rules that bitcoin is a currency for VAT

Published on 2nd Dec 2015

On 22 October 2015 the Court of Justice of the European Union gave its judgment in the case of Skatteverget v David Hedqvist relating to the VAT treatment of bitcoin. 

The background to the case is that Mr Hedqvist has a business selling bitcoin – or, in the terminology adopted by the CJEU, of exchanging bitcoin for “traditional” currencies. He had received a favourable ruling from the Swedish Revenue Law Commission that these transactions were exempt from VAT, which the Swedish tax authority, the Skatteverket, had appealed against. The Swedish courts had referred the dispute to the CJEU for determination. 

The CJEU’s decision is that such transactions are exempt from VAT. It is also clear from the judgment that this is on the basis that bitcoin is to be treated as a currency for these purposes, and not, for example, as an instrument that is a right to money. This corresponds with the view expressed by HMRC in their “Revenue and Customs Brief 9” issued on 3 March 2014 and so will not affect the treatment in the UK. However, to the extent that other Member States had taken a different view (which appears to have been the case in Estonia and Poland, for example), their approach will need to be changed to conform to the CJEU decision, which is binding in relation to VAT matters. 

So what does this mean? 

If sales or exchanges of bitcoin were subject to VAT, this would put transactions in bitcoin at a severe disadvantage compared to traditional currencies. The CJEU ruling therefore removes a major potential hurdle to the development of bitcoin trading. By providing greater certainty to the position, and, through its reasoning, by giving greater recognition to bitcoin as a currency, it potentially paves the way for wider adoption. 

The decision does not, however, resolve the VAT treatment of bitcoin mining, i.e. the rewarding of certain complex algorithm solving with bitcoin. Again, the stance in the UK has been that no VAT is payable in respect of this, but the reasoning behind this depends upon factors that were not within the scope of the issues determined by the CJEU.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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