ECJ resolution regarding the VAT treatment on exchange of “bitcoins”
This decision, dated October 22, 2015, attends the request for a preliminary ruling from the Supreme Administrative Court of Sweden in connection with the proceedings held with Mr. Hedqvist on whether transactions to exchange a traditional currency for the ‘Bitcoin’ virtual currency or vice versa, which Mr Hedqvist wished to perform through a company, were subject to VAT.
The two preliminary rulings filed before the ECJ are the following:
1) Is Article 2(1) of the VAT Directive to be interpreted as meaning that transactions in the form of what has been described as the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, constitute the supply of a service effected for consideration?
2) If so, must Article 135(1) [of that directive] be interpreted as meaning that the abovementioned exchange transactions are tax exempt?’
In this regard, we should mention the following rules that the ECJ takes into consideration for this issue:
Article 2 of the EU VAT Directive provides:
1. The following transactions shall be subject to VAT:
…
(c) the supply of services for consideration within the territory of a Member State by a
taxable person acting as such;
…’
Article 135 of the EU VAT Directive provides:
(1) Member States shall exempt the following transactions:
…
(e) 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;
For its part, the Swedish legislation transposes the above in its internal regulations as follows:
Article One provides that VAT is to be paid to the State on supplies within national territory of taxable goods or services effected by a taxable person acting as such.
Article 23 (1) provides that 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 which are of numismatic interest, are exempt from VAT.
The answer to the first question is that Article 2(1)(c) of the VAT Directive must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article.
Regarding the second question, the ECJ establishes that the Transactions involving non-traditional currencies, that is to say, currencies other than those that are legal tender in one or more countries, in so far as those currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to be a means of payment, are financial transactions, aspect that it seems proven in this case.
Consequently, it must be held that Article 135(1)(e) of the VAT Directive also covers the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, being, therefore, these transactions subject but exempt from VAT.
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