The news has been out since this morning so most of you have probably already seen it. Finally the judgement in the VAT case in EU court of justice has been published and it is great news. Commission made when exchanging between bitcoin and traditional currencies is VAT exempt. Below are some highlights from the judgement. First of all, it is clarified that bitcoin, the currency, is not "tangible property" and therefore not subject to VAT.
It must be held, first, that the ‘bitcoin’ virtual currency with bidirectional flow, which will be exchanged for traditional currencies in the context of exchange transactions, cannot be characterised as ‘tangible property’ within the meaning of Article 14 of the VAT Directive, given that, as the Advocate General has observed in point 17 of her Opinion, that virtual currency has no purpose other than to be a means of payment.
The exchange of bitcoins is a service that does fall within the scope of VAT but the main question is then if it can be included in one of the exemptions. The court decided that it actually does fall under the exemption 135.e. One key point in the argument is the ambiguity in different translations of the VAT directive.
the various language versions of Article 135(1)(e) of the VAT Directive do not allow it to be determined without ambiguity whether that provision applies only to transactions involving traditional currencies or whether, on the contrary, it is also intended to cover transactions involving another currency. [...] That expression must therefore be interpreted in the light of the context in which it is used and of the aims and scheme of the VAT Directive
The court then clarifies that these transactions are financial transactions and that excluding them from the exemption would "deprive it of part of its effect".
Transactions involving non-traditional currencies, that is to say, currencies other than those that are legal tender in one or more countries, in so far as those currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to be a means of payment, are financial transactions. [...] 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.
The conclusion is that it is covered by exemption 135.e.
I am very happy that we finally got this ruling, more than 3 years after I sent my request for a preliminary ruling to Skatterättsnämnden in Sweden. Businesses in Europe now have clear guidance regarding Bitcoin and VAT and hopefully this will encourage Bitcoin entrepreneurs all over Europe to take the step and turn their ideas into reality.