CJEU rules on VAT treatment of bitcoins

The exchange of traditional currency for units of bitcoin, and vice-versa, is exempt from VAT

The Court of Justice of the European Union (CJEU) issued a decision on 22 October 2015, in the Swedish case of Skatteverket v David Hedqvist (case C-264/14), concluding that no VAT is due on the exchange of a “traditional” currency into “bitcoin” (and vice versa), which means that bitcoin receives the same VAT treatment as real currency, i.e. a VAT exemption. The CJEU held that, although services providing for the exchange of traditional currency with bitcoin constitute a supply of services for consideration, these services are exempt from VAT under the EU VAT directive provision that requires member states to grant a VAT exemption for financial transactions involving “currency, bank notes and coins used as legal tender.”

Bitcoin is a virtual currency that may be used for payments when purchasing items online.

According to the CJEU, transactions involving nontraditional currencies should be considered VAT- exempt financial transactions to the extent such currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to serve as a means of payment. To interpret article 135(1)(e) of the VAT directive as covering only transactions involving traditional currencies would deprive it of part of its effect. On this basis, the CJEU concluded that the VAT exemption under the directive covers the supply of services consisting of the exchange of traditional currencies for units of bitcoin virtual currency, and vice versa.