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UK & Germany divided on bitcoin EU VAT case

  • Jan 11, 2015 | Richard Asquith

UK & Germany divided on bitcoin EU VAT case

The European Court of Justice (ECJ) is now reviewing EU member states' views on the tax treatment of digital currencies, such as bitcoin, ahead of a formal ruling. A sharp division has emerged in this process between the UK and Germany on the liability of bitcoin to VAT, which may put EU-based traders at a distinct disadvantage globally.

Bitcoin – commodity or currency driving tax liability

The ECJ is currently reviewing a bitcoin referral from the Swedish tax authorities, which is seeking clarity on the liability to VAT of bitcoin exchanges. The Swedish authorities believe that trading services should be subject to Swedish VAT at 25%. It considers bitcoin as a commodity, similar to gold, and therefore not exempt under Article 35 of the EU VAT Directive. Sweden has been joined in this view by Germany.

The UK Treasury is taking the view that digital currencies are 'private money’, and therefore a financial service. This would mean services provided by bitcoin traders would be VAT exempt. The European Commission agrees with this view.

At stake is Europe’s potential role as a global hub for digital currencies. London will likely want to keep pace with New York and Singapore, and establish itself as one of the key global hubs. It appears the UK wants to position itself as the world’s trading hub, which includes the most competitive tax environment for traders. But an unfavourable ECJ tax ruling would hand a big advantage to competing locations such as Singapore.

Australia and New York issue conflicting rulings

Australia Tax Office last month pronounced that the transfers of bitcoin was subject to the local VAT, Goods & Services Tax, at 10%. This is a setback to the Australian digital currency industry, which may now look to migrate to Hong Kong, which has no local sales tax regime. By contrast, New York took the opposite view, and exempt bitcoin trades from local sales tax.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara