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Sweden Calls For EU Ruling On Bitcoin Taxation

by Ulrika Lomas,, Brussels

22 July 2014

Sweden has asked the European Union to provide definitive rules on the Value Added Tax treatment of cryptocurrencies, such as Bitcoin, after concerns raised by the nation about the UK's revised position, issued in March.

On June 2, 2014, the Supreme Administrative Court of Sweden (Högsta förvaltningsdomstolen) lodged a request for a preliminary ruling with the European Court of Justice (Case C-264/14), asking whether the exchanging of Bitcoin for fiat currencies, and vice versa, is a transaction liable to VAT.

To date, there has been a significant divide between countries in their guidance on the taxation of Bitcoin, and uncertainty lingers. A local authority in Poland has said that all transactions related to Bitcoin should be taxable, regardless of the location of the recipient. Poland and Estonia, too, have said any trading activity is subject to full VAT.

Although the current situation remains unclear, Germany said Bitcoin should be classified as a "unit of account," meaning VAT would be charged on Bitcoin-"denominated" transactions between taxable persons. It had sought to charge VAT on commissions from trading activities, but said VAT would not be levied on the face value of Bitcoin trades. Both Germany and the UK intend to charge VAT on supplies of goods and services for a consideration of Bitcoin, but the UK has issued clearer rules stipulating that all Bitcoin-creating "mining" and trading activities are exempt from VAT.

In comments on July 21, 2014, Richard Asquith, VP Global Tax, Avalara, said: "The EU has been slow to give VAT guidance on digital currency trading, which has meant member states have been issuing inconsistent rulings. As a result of [its] highly favorable and clear tax environment, the UK has benefited from this confusion by attracting trading from other EU countries and beyond."

In March, the UK tax authority, HM Revenue and Customs (HMRC), issued Brief 09/14, which states that, for VAT purposes, Bitcoin and similar cryptocurrencies will be treated as follows:

  • Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes. HMRC has said that this is because there is an insufficient link between any services provided and any consideration received.
  • Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of "transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments."
  • When Bitcoin is exchanged for sterling or for foreign currencies, such as euros or dollars, no VAT will be due on the value of the Bitcoins themselves.
  • Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined above.

CCH Global VAT Research Library
TAGS: environment | compliance | VAT tax authority guidance | tax | business | value added tax (VAT) | mining | VAT legislation | law | Estonia | tax authority | legislation | Germany | Poland | Sweden | HM Revenue and Customs (HMRC) | currency | HM Revenue and Customs (HMRC) | services | VAT goods & services classification | VAT case law | VAT compliance matters | Europe | Tax

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