Case Law of the European Court of Justice

On 22nd of October 2015 the European Court of Justice passed its ruling that Bitcoin transactions should be exempt from value added tax (VAT).

Virtual currency Bitcoin is usually used as mean of payment on the Internet among individuals and some of the Internet traders who accept Bitcoins as a currency. Bitcoins do not have one publisher and are created directly on a network using certain algorithm.

The case brought before the European Court of Justice concerned the Swedish Revenue Law Commission passing a decision, according to which the activity of sale and purchase of Bitcoins should be regarded as an exchange service effected for consideration, covered by an exemption from VAT. The Swedish tax authority appealed against such statement. 

In this case the main questions were whether the exchange transactions of Bitcoins should be considered as a supply of services under Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (VAT Directive) and whether the exchange transactions of Bitcoins could be exempted from VAT.

The VAT Directive states that Member States of the EU exempt transactions from VAT involving currency, bank notes and coins used as a legal tender. Whereas the transactions involving currencies other than those that are legal tender in one or more countries are recognized as financial transactions, if the transaction parties recognize these currencies as a legal tender and its currency has no other purpose than to use them as a means of payment.

The European Court of Justice has pointed out that transactions which consist of the exchange of traditional currency units for units of “bitcoin” virtual currency and vice versa do not fall within the concept of the “supply of goods”, but rather constitute the supply of services for consideration within the meaning of the VAT Directive. 

The Court then stated that virtual currency Bitcoins, being a contractual means of payment, cannot be regarded as a current account or a deposit account, a payment or a transfer. Moreover, unlike a debt, cheques and other negotiable instruments, Bitcoin virtual currency is a direct means of payment between the operators who accept it.

In thus follows that virtual currency Bitcoin has no other purpose than to be a means of payment and that it is accepted for the purpose by certain operators, therefore the Court has ruled that Bitcoins transactions have to be treated as traditional currency exchange transactions and have to be exempt from VAT.

The ruling of the European Court of Justice can be found here.

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