It’s no secret that Swedish politics are becoming Bitcoin-centric. Now, Sweden’s government solicited the European Union to issue authoritative rules on the VAT (value-added tax) treatment to decentralized virtual currencies, such as Litecoin and Bitcoin. Sweden is looking for confirmation, now that the UK altered its position with regards to Bitcoin taxation.

Earlier this month, Högsta förvaltningsdomstolen - the Supreme Administrative Court of Sweden - filed a special request asking for a preliminary ruling in front of the European Court of Justice. They wanted to know if Bitcoin exchanges are susceptible to sales tax or VAT.

The ruling is meant to determine whether or not Bitcoin is truly a currency, in which case it should be excused from VAT; however, if the cryptocurrency is a payment mode, it should be subjected to a value-added tax. The distinction is extremely important because if cryptocurrencies are labeled as an exchange form, then may face a 21% tax for making use of peercoins, bitcoins, and dogecoins.

Digital currencies classification causes major disputes in European countries

Bitcoin classification and other digital crypto currencies are causing major disputes in several European countries. For example, Estonia and Germany labeled the Bitcoin as a "unit of account", which is more like a move that would permit the Bitcoin to be excused of taxes; the UK on the other hand, scrapped any kind of VAT for transactions in bitcoins.

The Swedish Central Bank announced in January that they would treat the cryptocurrencies as an asset, similar to stamps, art, and antiques, and not as a currency. Basically, this means Sweden would impose capital gain taxes on cryptocurrency transactions. VP Global Tax of Avalara, Richard Asquith, mentioned in a statement:

“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.”

- The Swedish Central Bank

In the meantime, the EBA (European Banking Authority), a banking overseer, advised the EU to ignore virtual currencies, until some clear regulations are established. The EBA suggested the EU to adopt special guidelines for exchange platforms and hearten new organizations to watch over virtual currencies so as to offer assurance that there's no one manipulating the digital currency's "integrity.”

Furthermore, the EBA considers that financial institutions must not keep a sum of cryptocurrencies; this basically means they should abstain from holding, buying or selling any type of digital currency.

Spokesman for the European Union Financial Services, Michel Barnier, said:

“We will now look into what can be done to possibly introduce regulation in this sector, particularly to address the risks of financial crime that arise from the anonymity that characterizes many virtual currencies [...]. It is imperative to move quickly on this issue. The potential for money laundering and terrorist financing is too serious to ignore.”

Europe has played a vital role in the crypto currency industry. The EU in particular, maintains an unbelievable user base for Bitcoin; and yet, government officials and central banks are still having doubts when it comes to adopting the digital currency and making it available for everyone to use. 

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