The European Court of Justice (ECJ) has ruled that bitcoin exchange transactions “are exempt from Value Added Tax under the provision concerning transactions relating to currency, bank notes and coins used as legal tender.”
In the landmark judgement of Skatteveket vs. David Hedqvist, the Court analysed the legal nature of virtual currencies, in this case bitcoins, and determined that the exchange of traditional currencies for virtual currencies falls under the scope of VAT but is exempt from its payment.
The information provided in the main proceedings laid down that the defendant’s company’s main activity was that of exchanging traditional currency for virtual currencies, such as bitcoins. It clarified that although the activity conducted by the defendant’s company consisted of a “supply of services” for “consideration” (which falls under the scope of VAT), it is an activity that is exempt from its payment.
This, as a result, gives virtual currencies a similar treatment to the one traditional currencies are currently given, which is based on Article 135(1)(e) of Council Directive 2006/112/EC on the common system of VAT. The latter provides that member states shall exempt “transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest”.
