No VAT for Europe's bitcoin transactions

Thursday 29 October 2015

The European Court of Justice has just ruled that money should be treated as money - something that wasn’t a foregone conclusion.

Around the world bitcoin is treated in different ways from a regulatory position. Depending on your jurisdiction, it might be ignored, outlawed, treated the same as money, or understood more like stocks. Each of these have different implications for the amount and type of taxes paid, the ways that different businesses and institutions engage with bitcoin and, in some cases, the amount of jail time you’ll face for being caught using it.

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The taxman gets a day off when it comes to VAT on bitcoin transactions

And this regulatory Babel of different voices is the reason that the European Court of Justice’s recent decision is noteworthy. Bitcoin transactions are to be exempt from VAT, allowing the virtual currency to be treated much the same as any other currency.

The decision arose from a case in which a Swedish man was collared by the tax authorities, which wanted to charge VAT on the bitcoin transactions made on his exchange. This, of course, would have put a serious dent in his business, since VAT across most of the EU is somewhere in the region of 20%. The case went to the ECJ, which ruled that bitcoin should indeed be considered a means of payment and thus exempt from VAT.

Because legislation across Europe differed, this Europe-wide decision is a big deal. Some countries treated bitcoin like a commodity, some like cash. Now, they’re all on the same page, and VAT is out of the picture. That’s as it should be, of course; bitcoiners have known all along that bitcoin falls into the category of cash rather than another asset class. But it takes a while for the world to catch on.

I’m always a little hesitant to say that any market movement is a reaction to news, because the market tends to interpret news in the light of what it is already doing (how many positive news stories were ignored in the bear market; how many negative ones are dismissed in the irrational exuberance of a bubble?). News just gives traders an excuse to do what they want to, assuming it fits that picture.

At the least, though, the news about the European Court of Justice’s decision has been a catalyst for bitcoin to rally and push through the $300 mark for the first time since July. It offers confidence to merchants who can now see healthier profit margins, in the knowledge that the intrinsic benefits of using crypto will not be eroded by poorly-thought-through taxes. Put simply, it’s just common sense - but it’s also good news. Very good news.

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