Stefano Capaccioli

The Swedish Supreme Administrative Court in the Case No. 7101-13 resolved to submit a preliminary ruling under Article 267 TFEU on the interpretation of Article 135.1 of the Directive 2006/112/EC on VAT taxation on bitcoin.
The question raised in a case in which advance ruling sought by a person who intends to carry on business through a switching operation with the virtual currency bitcoin to “fiat” currency.
The Supreme Administrative Court raised the following questions:
1. Does the exchange of virtual currency with “fiat” currency constitute a supply of service under VAT Directive?
2. Should the answer to the above be yes, are the exchange transactions of bitcoins exempt from VAT under Article 135.1 of VAT Directive?
The Court of Justice of the European Union received the preliminary ruling on 02.06.2014 and assigned to it the number C-264/14.
In light of that, we deem necessary to briefly summarize the history and the interpretations made on this matter in some Member States of the European Union in order to point out differences.
The German Ministry of Finance, answering (DOK: 2013/0752711 and 2013/0883337) to Deputy Frank Schaeffler (No. 409 of July 2013, n. 226, September 2013), resolved that bitcoins are “private money” or complementary currencies, used as a means of payment in multilateral clearing systems and based on private agreements.
The Minister of Finance after a first denial of the exemption as coin and/or foreign currency (Article 4 number 8 letter b of the German VAT Law – UStG), later considered bitcoin VAT exempt pursuant to point c, (Art. 135.1 d Directive 2006/112/EC), as “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection” on the basis that the mere payment does not constitute the provision of the service and therefore not subject to VAT.
HMRC, with Revenue & Customs Brief 09/14 resolved that:
1. 1.Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.
2. 2.Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments.’
3. When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.
4. Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above.
The Estonian tax authority (Maksu Tolliamet-ja) in March of 2014, has published on its website an interpretation of the taxation of bitcoin, resolving that bitcoin does not fall under any of the exemptions under Article 135.1 of Directive 2006/112/EC, on the consideration that financial services are listed and require certain characteristics that bitcoins do not have. The Authority based its resolution on a strict interpretation of means of payments, electronic money, securities and financial services, considering transactions in bitcoin as provision of service subject to normal VAT taxation.
The directors of the local tax authority in Poland (Interpretacja Dyrektora Izby Skarbowej w Łodzi, IPTPP2/443-52/14-6/IR, Poznaniu ILPP1/443-912/13-2/AW, Katowicach, IBPP2/443-762/13/ICz) resolved that the sale of bitcoin could not be exempted under Article 135.1 of the Directive 2006/112/EC and therefore, as a service, it is subject to normal VAT taxation. The interpretations were based on the assumption that the exemptions referred to Directive 2006/112/EC must be interpreted strictly (CJEU Judgment no. C-461/08 paragraph 25) and that the same exemptions (pursuant to Art. 131.1) are subject to the conditions laid down by the Member States, even though it is recognized that bitcoin is, at the same time, a unit of account and a payment system, but:
1. The payment system does not have any issuers or any institutions to supervise.
2. The unit of account cannot be considered a currency due to a lack of legal status.
The Swedish Authority for the Ruling, first, dealt with the Decision 10.14.2013 (ref. 32-12. / I Mervärdesskatt: Handel med bitcoins) on trade in bitcoins.
The Ruling resolved that the absence of the definition of currency in the VAT Directive leads to the interpretation of this term as a mean of payment.
In the Article 135.1 of Directive 2006/112/EC letter e) “transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest” the term currency is not linked to legal tender. The presence of the exception of the “collectors’ items” that certainly were legal tender, but are not normally used as such because they are collectors’ items, is reported only to coins and banknotes. This excludes the concept of “currency” of the need of legal tender.
On the basis of these considerations:
– Exchange of bitcoin requires similar requirements to intermediation of financial services,
– The bitcoins are a mean of payment used in a similar way to legal tender,
– The bitcoin have strong similarities with electronic money,
the Authority for the Swedish Ruling held that bitcoin transactions should be considered as transactions concerning currency referred to in Article 135.1. letter e), consistent with the purposes of the exemptions provided for in Article 135.1. (Avoid the difficulties associated with applying VAT to financial services.).
The Swedish Supreme Court considered the case and resolved that Court of Justice have not considered how Article 135.1 d, e, f of the Directive 2006/112/EC must be interpreted with respect to foreign exchange transactions related to virtual currencies. According to the Supreme Administrative Court’s opinion, it is unclear whether any of these exemptions include those exchange transactions
The heterogeneous situation that led to C-264/14 needs an interpretation.
Art. 135.1 letter f) exempts “other securities” and I think that bitcoin is similar to securities under Directive 2006/112/EC.
The term security is not defined in the Art. 135.1, but letter f) excludes “…documents establishing title to goods, and the rights or securities referred to in Article 15(2)” and, for this, the concept of security is “fuzzy” and open.
For this sake, bitcoin acts like a security and the failure of an issuer is not decisive under VAT Directive.
Bitcoin has not an intrinsic value, it is a mean of payment, it does not contain any added value and it circulates as a security. Therefore, the inclusion of bitcoin under exemption of Article 135.1 letter f), is consistent with the purpose of the VAT exemption of financial services.
In the opposite case, all complementary currencies shall not be exempted from VAT.
I will thank Mats Holmlund of Skeppsbron Skatt for the assistance in Sweden.

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