A Lawyer’s Comment to the European Court of Justice Judgment on Bitcoin VAT exemption in Europe

On October 22, 2015, the European Court of Justice ruled that Bitcoin is a means of payment and its exchange is exempt from VAT in a landmark ruling.

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A Lawyer’s Comment to the European Court of Justice Judgment on Bitcoin VAT exemption in Europe

On October 22, 2015, the European Court of Justice ruled that Bitcoin is a means of payment and its exchange is exempt from VAT in a landmark ruling. But a few people understand the implications of this decision. That’s why CoinTelegraph decided to ask for comment an experienced bitcoin lawyer. Our expert is Stefano Capaccioli.

Stefano Capaccioli is CPA, Auditor, Tax litigator, Tax Advisor, Business Consultant, Specialized in Law & Tax on Gold, Precious Metals and Cryptocurrencies gives a professional Comment to Court Of Justice Judgement C-264/14 on bitcoin VAT exemption.

Stefano Capaccioli

A Comment to Court Of Justice Judgment C-264/14 on bitcoin VAT exemption

The European Court of Justice gave Judgment C-264/14 on the VAT treatment of bitcoin and virtual currencies, interpreting Article 135 (1) of Directive 112/2006/EC, and in particular the letters d), e) and f). The Judgment C-264/14 declared that bitcoin and cryptocurrencies are VAT exempt as currency, although not legal tender.

This Judgment constitutes an authentic interpretation of the VAT Directive 2006/112/EC and it is applicable in all 28 Member States, harmonizing the VAT treatment of bitcoin and constitutes the first official legal document in the European Union.

The Decision is of historic importance: it clarifies all doubts and removes the confusion on the applicability of consumption taxes to bitcoin, considering cryptocurrencies as a simple means of payment and, under a VAT perspective, similar to a foreign currency.

Some of the European Union Member States’ Tax Authorities issued their own ruling: the resulting situation was quite confusing because of the dissimilar interpretations, and in particular:

Sweden: the promoter of the preliminary ruling (Case No. 7101-13), had their Tax Authority indicate that bitcoin was exempt as other currencies under Article 135 (1) letter e).

United Kingdom: the Tax Agency of the United Kingdom (Her Majesty's Revenue & Customs), published on March 3, 2014 the Revenue & Customs Brief 09/14 stating that bitcoin was VAT exempt as "other negotiable instruments" (Article 135, paragraph 1, letter d).

Estonia: the Estonian Tax Authority (Maksu- Tolliamet) published in March 2014 an interpretation of the taxation of bitcoin, ruling that bitcoin was subject to VAT (also supported by the Court of Justice).

Poland: the directors of the local tax units of the Polish Tax Authority made various interpretations on bitcoin and concluded it was a taxable service.

Germany: the German Ministry of Finance, in response to the questions of the deputy Frank Shaffler (no. 409, July 2013 and no. 226, September 2013), ruled that bitcoin is "private money" denying the exemption (also supported by the Court of Justice).

Belgium: the Tax Administration of Belgium with a ruling (GTVA20141533 / TL / MP of 05/09/2014) considered bitcoin as a "virtual payment system" and that it was VAT exempt as “other effects", (Article 135, paragraph 1, letter d).

France: The Commission of the French Senate presented a Report indicating that France will support VAT exemption to avoid a repeat of the VAT frauds in emissions trading system (carbon credits).

Finland: the Keskusverolautakunnan (LKT) - Central Committee of the taxes - issued a Ruling on VAT on commissions earned by the intermediary of virtual currency, considering bitcoin similar to a means of payment under VAT Directive and consequently VAT exempt (Article 135, paragraph 1, letter d).

Spain: the Direccion General De Tributos (DGT) - Secretaria de Estado de Hacienda, ruled on March 30, 2015 with Consulta Vinculante n. V1029-15 that bitcoin is "other negotiable" and VAT exempt in accordance with art. 135.1 d).

The opinion of Advocate General Kokott, delivered on July 16 2015, stressed:

“currencies currently used as legal tender (...) have no other practical use than as a means of payment. Their function in a transaction is simply to facilitate trade in goods in an economy; as such, however, they are not consumed or used as goods”.

Therefore, for VAT purposes, the pure means of payment perform the same function as legal tender and as such must, in accordance with the principle of fiscal neutrality in the form of the principle of equal treatment, be treated the same way.

The Court of Justice adheres to this innovative principle and, considering applicable the principles of the First National Bank of Chicago (Judgment C-172/96), declares certain types of transactions VAT exempt under Article 135 (1) letter e). This ECJ never interpreted this letter.

The Judgment considered irrelevant the presence of "legal tender" for currencies, if the means of payment has no other purpose other than a means of payment, although on a contractual or voluntary basis.

The Member States VAT laws must take into consideration this interpretation and particularly paragraph 51 of the Judgment:

“It therefore follows from the context and the aims of Article 135(1)(e) that to interpret that provision as including only transactions involving traditional currencies would deprive it of part of its effect.”

So possible reference to legal tender or to traditional value shall not be compliant with VAT directive.

This Judgment will certainly have a significant impact on the cryptocurrencies ecosystem geopolitical scenario, as it is the first step in creating a stable and reliable legal framework, at least on VAT.

In the European Union consumers will buy bitcoins without any taxation and will be treated as means of payment until they cannot be used for other purposes. Other countries have different approaches because of existing rules: they run the risk to depress innovation (in Norway, Singapore and Australia the purchase of bitcoin is subject to indirect taxes).

The Judgment is the practical demonstration that bitcoin needs no specific regulation, but only the interpretation of existing legislation because bitcoin does not fall in any legal vacuum.

This position could also have an impact on future technological developments such as smart contracts (computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause), blockchain technology-based systems, integration with banking, insurance systems, and the Internet-of-Things.

Many of these protocols will be based on units of account (tokens) similar to bitcoin and cryptocurrencies. The Judgment will allow VAT exempt movement of units of account for the payment of goods and/or services or for Internet-of-Things (IoT) connected devices. In any case, the products/services provided will follow the normal VAT rules. These scenarios are subject to growing challenges for the interpreter in an interconnected world where regulatory barriers and borders are becoming ever so thinner. However it is great for bitcoin and its future that the EU is taking a stance on VAT, this should at least allow for other countries and regions to have a precedent to consider when making their own interpretations and conclusions.


Stefano Capaccioli is CPA, Auditor, Tax litigator, Tax Advisor, Business Consultant, Specialized in Law & Tax on Gold, Precious Metals (aurumlex.it) and Cryptocurrencies (www.coinlex.it). Author of a monography on bitcoin (Criptovalute e bitcoin: un'analisi giuridica) and a dozen of articles on this matter.

Arezzo, Tuscany, Italy.

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