Europe's top court gives bitcoin VAT exemption

Taxpayers that exchange national currencies for bitcoins, the virtual currency, will not have to pay value-added tax says The European Court of Justice.

The long-awaited ruling has clarified the tax treatment of those who use virtual currencies in the European Union.

EU VAT Directive

The new ruling by the ECJ means that when someone buys bitcoins, the transaction will fall under

provisions made in the EU VAT Directive that exempts "currency, bank notes, and coins used as legal tender" from being liable to VAT demands from member states.

The Revenue Law Commission had previously ruled in favour of David Hedqvist, a Swedish taxpayer, but the decision was challenged in front of the Swedish Supreme Administrative Court. The matter was then referred to the ECJ.

Genuine alternative

The VP of Global Tax at tax automation providers Avalara, Richard Asquith, commented on the ECJ decision: "Today's ruling will help boost the UK's prospects of securing its position as the European and global hub for the bitcoin sector. As long as the VAT treatment of bitcoin remained uncertain, intense competition from global exchanges such as Switzerland, Singaporem, and Hong Kong, threatened to take market share."

"This is also the first step in securing bitcoin's future as a genuine alternative to national currencies. The next stage will be receiving regulatory compliance approval from national banks," he added.

According to Asquith, the ruling will affect how the general public views digital currencies, giving people confidence to adopt them for use in day-to-day activities. He added, “Retailers and payment platforms will now likely step-up their investment in bitcoin management in anticipation of this.”