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Court of Justice of the European Union/Sweden: Purchase and Sale of Bitcoins Not Subject to VAT

(Nov. 5, 2015) On October 22, 2015, the European Court of Justice (ECJ) issued a preliminary ruling on the taxation of Bitcoins. (Case C-264/14, Skatteverket v. David Hedqvist, 2015, INFOCURIA – CASE-LAW OF THE COURT OF JUSTICE (Oct. 22, 2015) (ECJ Preliminary Ruling).)

The ruling was in response to a 2014 request by the Swedish Högsta Förvaltningsdomstolen (Supreme Administrative Court) for a preliminary ruling by the ECJ on the subject. The Swedish Supreme Administrative Court was to decide an appeal initiated by the Swedish Tax Authority against a preliminary decision given by the Swedish Revenue Law Commission (Skatterättsnämnden) that the sale and purchase of Bitcoins were exempt from value-added tax (VAT). (Id. ¶¶ 18 and 21.)

The Swedish Supreme Administrative Court stayed its proceedings and asked the ECJ to answer the following questions:

  1. Is Article 2(1) of the VAT Directive to be interpreted as meaning that transactions in the form of what has been described as the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, constitute the supply of a service effected for consideration?
  2. If so, must Article 135(1) [of that directive] be interpreted as meaning that the abovementioned exchange transactions are tax exempt? (ECJ Preliminary Ruling ¶ 21; Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax (VAT Directive), OJ 2006 (L 347) 1.)

In answering these questions, the ECJ followed the ECJ General Advocate’s reasoning and found that Bitcoins have no other purpose than to be used as a means of payment, and therefore are not tangible property. (ECJ Preliminary Ruling ¶ 24; Opinion of Advocate General Kokott (July 16, 2015), (1) Case C‑264/14 Skatteverket v David Hedqvist, INFOCURIA – CASE-LAW OF THE COURT OF JUSTICE.)

The ECJ ruling states:

The answer to the first question [whether the exchange is a service] is that Article 2(1)(c) of the VAT Directive must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article. (Id. ¶ 31.)

The answer to the second question stated above is that such transactions are tax exempt:

Transactions exempt from VAT under those provisions are, by their nature, financial transactions even though they do not necessarily have to be carried out by banks or financial institutions (see judgments in Velvet & Steel Immobilien, C‑455/05, EU:C:2007:232, paragraphs 21 and 22 and the case-law cited, and Granton Advertising, C‑461/12, EU:C:2014:1745, paragraph 29). (Id. ¶ 37.)

 The ECJ therefore held:

Article 135(1)(e) of Directive 2006/112 must be interpreted as meaning that 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, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision.

Article 135(1)(d) and (f) of Directive 2006/112 must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions. (Id. ¶ 58.)

Thus, the ruling upholds the Swedish Revenue Law Commission preliminary decision and means that buying and selling Bitcoins should not be subject to VAT in Sweden or in any other European Union member country.