European Court of Justice May Soon Clarify Bitcoin VAT Rules

European Court of Justice is expected to deliver a decision on bitcoin VAT after a recent legal referral in the EU.

The European Union (EU) is expected to clarify the taxation on the trading of cryptocurrencies, including bitcoin. Photo: Margarete Ziegler-Raschdorf/Flickr

The European Union (EU) is expected to clarify the taxation on the trading of cryptocurrencies, including bitcoin. Photo: Margarete Ziegler-Raschdorf/Flickr

The European Union (EU) is expected to clarify the taxation on the trading of cryptocurrencies, including bitcoin.

There are only few member states that have decided how to interpret value-added tax (VAT) rules in their countries and some even have no regulations at all.

In March, the UK published its own ruling, making bitcoin trading exempt from VAT. It states that taxes should be levied on profits from selling goods and services for bitcoin.

Some countries made their own decisions about VAT. For example, Estonia charges 20% for trading bitcoin as a service and levies a 10% tax on revenues from trading bitcoin. Meanwhile, Poland charges a 23% VAT on bitcoin mining profits.

Earlier this summer, Sweden has asked the European Court of Justice (ECJ) to give its opinion on whether exchanging bitcoin for fiat currencies is liable to valued-added tax (VAT).

Co-lead of the exchanges regulation and accounting working group for the UK Digital Currency Association (UKDCA), Siân Jones, explained: “On most banking transactions, the charges that the bank makes are exempt from VAT, so you don’t pay them.”

According to Estoban van Goor, European tax lawyer, it is expected to take about two years for the ECJ to deliver a decision. He added that the ruling could prompt other states to change their regulations and even prompt the EU to address VAT on cryptocurrency.

VAT is relevant to exchanges on fees charges for exchanging bitcoin into fiat currency. VAT is also relevant to merchants selling goods and services for bitcoin. Many countries have not decided whether the merchants should charge VAT on the sale of goods and services.

Some countries also ask themselves if people should be charges VAT for selling their own bitcoins.

For instance, Norway treats bitcoin as an asset and renders it taxable. The sale of bitcoin is not a financial service and invokes a VAT fee of 25%. Meantime, Brazil will charge people for selling bitcoins if their value is more than $16,000.

Some people are worried about the possibility of double tax for traders, once when they exchange bitcoin for services and again when they sell it.

In some countries there is a potential for a triple tax, when companies are taxed for buying bitcoins, selling them and using them as a form of payment.

While it is possible to regulate VAT aspects in Europe, it will be difficult to reach a single approach to other taxes. Personal taxes and income taxes are calculated at a national level.

However, the things are less defined at the state level. It usually takes a lot of time to issue official guidance on digital currencies and taxes.

Omri Marian, an assistant professor of law at the University of Florida who wrote a paper on the use of cryptocurrency , said: “First, states seem more concerned about bitcoin when it comes to consumer finance and investor protection issues.”

There are also several non-EU countries that have not yet issued bitcoin taxation rulings, among others Israel and Australia.

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