Bitcoin trading is exempt from VAT

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Summary
The VAT Directive provides an
exemption for transactions in
currencies.
This case concerns 'Bitcoins' - a
virtual 'digital' currency used for
payments made between private
individuals via the internet and in
certain online shops that accept the
currency.
Mr Hedqvist is a 'broker' of such
currency and both buys and sells
Bitcoins via his website making a
margin on each transaction.
The Swedish referral to the Court of
Justice asked the Court to determine
firstly whether those activities
constituted a supply of services for
VAT purposes and, if so, whether
such supplies were covered by the
VAT exemption
22 October 2015
Court of Justice Case C-264/14
The Court of Justice (CJEU) has issued an interesting judgment in the above case which
relates to the buying and selling of the virtual currency 'Bitcoins'.
Given the virtual nature of the currency, the referring Swedish Court was unsure about
the correct VAT treatment of 'commission' earned by Mr Hedqvist in connection with
his dealings in Bitcoins. For each transaction (whether buying or selling) the taxpayer
made a margin and the Swedish court wanted to know whether such margin should, for
VAT purposes, be regarded as consideration for a supply of services. If the answer to
that question was 'yes', the Court wished to understand whether such services were
covered by the VAT exemptions contained in Articles 135(1) of the Principal VAT
Directive.
In essence, the CJEU confirmed that Bitcoins, being a virtual currency consisting of the
exchange of different means of payment, cannot be characterised for VAT purposes as
'tangible property'. As such, they do not fall within the concept of being goods and
must, therefore, be regarded as services. Secondly, as the exchange of currencies
(Bitcoin to real currency and vice versa) were performed for an agreed margin, the
margin earned by Mr Hedqvist constituted consideration for that supply bringing the
transactions squarely within the scope of VAT.
Article 135(1)(e) of the Directive exempts from VAT transactions involving currency,
bank notes and legal tender. As Bitcoins are used to pay for goods and services they are
equivalent to any other currency and, as a consequence, transactions involving the
exchange of Bitcoins should be treated in exactly the same way as transactions in real
currencies. It therefore follows from the context and the aims of Article 135(1)(e) that
to interpret that provision as including only transactions involving traditional currencies
would deprive it of part of its effect. Accordingly, the transactions undertaken by Mr
Hedqvist are exempt from VAT.
Comment – This judgment will be welcomed by brokers in Bitcoins and other virtual
currencies as VAT is not due on the margins achieved from buying and selling.
David Hedqvist – dealing in 'Bitcoins'
Case Alert
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
Andrea Sofield London & South East andrea.sofield@uk.gt.com (0)20 7728 3311