EU’s Top Court Rules That Bitcoin Exchange Is Tax-Free

(Bloomberg) Bitcoin and other virtual currencies can be exchanged tax free, the
European Union’s top court said in a ruling that puts them on a more
equal footing with traditional cash.

Value added tax — a type of
sales levy — needn’t be applied because the business involves “the
exchange of different means of payment,” the EU Court of Justice in
Luxembourg ruled Thursday. The case was triggered by a dispute in
Sweden, where David Hedqvist set up a service for the exchange of
mainstream money for bitcoin and vice versa.

Bitcoin
currency, introduced in 2008 by a programmer or group of programmers
under the name Satoshi Nakamoto, has no central issuing authority and
uses a public ledger to verify encrypted transactions. It has gained
traction with merchants selling legitimate products but also has been
used to facilitate illegal transactions because money can be transferred
anonymously.

“Transactions
to exchange traditional currencies for units of the bitcoin virtual
currency (and vice versa) constitute the supply of services” under the
bloc’s law “since they consist of the exchange of different means of
payment,” the court ruled. As such they are exempt from value-added
taxes, it said.

To exclude such transactions from the tax
exemptions given to traditional exchanges “would deprive it of part of
its effects,” given that the exemption’s aim is to counter “the
difficulties connected with determining the taxable amount and the
amount of VAT deductible” in cases of taxation of financial
transactions, the court said.