The Court of Justice of the European Union (CJEU) has ruled that transactions involving the exchange of a traditional currency for a virtual currency and vice versa constitutes a supply of services effected for consideration, which is exempt from value added tax (VAT).
The CJEU has delivered its judgment in a case from Sweden concerning the VAT treatment of transactions involving the exchange of traditional currency for virtual currency and vice versa.
The case concerned a taxpayer, Mr. Hedqvist, whose company wished to provide services consisting of the exchange of traditional currency (such as the Swedish krona) for bitcoin virtual currency and vice versa.
Users of his services would purchase and sell the bitcoin virtual currency on the basis of an exchange rate; the difference between the purchase price and the sale price would constitute Mr. Hedqvist’s company’s earnings. The company would not charge any other fees. Before beginning operations, Mr. Hedqvist sought to clarify whether VAT was due on this exchange service. The Swedish tax authorities considered that this activity was not covered by any VAT exemption. Therefore the referring court asked whether transactions involving the exchange of traditional currency for units of the ”bitcoin” virtual currency and vice versa constituted the supply of services for consideration for VAT purposes and, if so, whether such exchange services were exempt from VAT.
The CJEU held that such transactions were exempt from VAT under Article 135(1)(e) of the VAT Directive, which applies to transactions concerning currency, bank notes and coins used as legal tender. Specifically, the CJEU held that the exemption laid down by Article 135(1)(e) was intended to alleviate the difficulties connected with determining the taxable amount in the context of the taxation of financial transactions.
In this case transactions involving non-traditional currencies (i.e. currencies other than those that are legal tender in one or more countries), where such currencies had been accepted by the parties to the transaction as an alternative to legal tender (and had no other purpose than to be a means of payment) were to be considered as financial transactions.
It therefore followed that Article 135(1)(e) is to be interpreted as including transactions involving traditional currencies which would be exchanged for bitcoin virtual currency and vice versa as the exchange had no other purpose than to be a means of payment and that it was accepted for that purpose by the operators involved.
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