European Union to review tax on Bitcoin trading

Get Exclusive Analysis and Investing Ideas of Future Assets on Hacked.com. Join the community today and get up to $400 in discount by using the code: "CCN+Hacked". Sign up here.

Get Exclusive Analysis and Investing Ideas of Future Assets on Hacked.com. Join the community today and get up to $400 in discount by using the code: "CCN+Hacked". Sign up here.

bitcoin tax european unionThe European Union is to step in to determine the Value Added Tax treatment on the trading of cryptocurrencies, such as Bitcoin. Sweden has prompted the investigation, fearing its own initial tax pronouncement is being undermined by the UK’s revised position issued in March this year.

European Court of Justice to clarify VAT liability

Sweden has asked the European Court of Justice to give its opinion on whether exchanging Bitcoin for traditional sovereign currencies is liable to VAT.  At the heart of this question is whether Bitcoin is a currency (which is exempt from VAT) or a form of barter (subject to VAT).

Countries such as Germany and Estonia have already ruled that Bitcoin exchanges are VAT free.  They consider the new digital currencies as ‘private money’ used as a payment for goods or services.  However, the other countries that have pronounced, including Poland and Estonia, have ruled that any trading is subject to full VAT.

The differences in these approaches are dramatic for the industry since they potentially add over 21% (the average EU VAT rate) onto the cost of using the currency.

UK’s VAT position attracting global businesses

At the end of 2013, the UK’s HMRC declared that Bitcoin is similar to vouchers, and not a currency.  This left any trading open to a 20% UK VAT liability.  However, following extensive lobbying by the market, HMRC reversed its position in March 2014 to treating Bitcoin as a virtual currency, similar to gold sovereigns, and therefore VAT exempt.

Richard Asquith, VP Global Tax, Avalara, commented:

“The EU has been slow to give VAT guidance on digital currency trading, which has meant member states have been issuing inconsistent rulings.  As a result of the UK’s highly favorable and clear tax environment, it has benefited from this confusion by attracting trading from other EU countries and beyond.”

Featured image by Shutterstock.