Today the oral hearing in the Bitcoin VAT case was held at the EU Court of Justice in Luxembourg. For those who haven’t followed the case, the questions referred to the court are quoted below. Everyone seems to agree that the answer to the first question is ‘yes’ so the debate is regarding question number two.

Is Article 2(1) of the VAT Directive 1 to be interpreted as meaning that transactions in the form of what has been designated as the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, constitute the supply of a service effected for consideration? If the answer to the first question is in the affirmative, is Article 135(1) to be interpreted as meaning that the abovementioned exchange transactions are tax exempt?

Besides me and my lawyer, Fredrik Berndt from Mannheimer Swartling, the following countries/institutions attended the hearing:

Sweden , who actually sent a total of 4 people from Skatteverket (the tax agency) and Finansdepartementet (ministry of finance). Arguing against us.

, who actually sent a total of 4 people from Skatteverket (the tax agency) and Finansdepartementet (ministry of finance). Arguing against us. Germany . Arguing against us.

. Arguing against us. The European Commission. Arguing in our favor.

Each party had 15 minutes to present their arguments to the 5 judges and the advocate general. Following this a few questions were asked by the judges and finally everyone had the oppurtunity of a very short final pleading. The instructions were to not simply repeat what was stated in written submissions but to bring something new to the table.

We focused on rebutting the written arguments of Germany as well as strengthening our arguments regarding exemption 135.1d, specifically “other negotiable instruments” which is the broadest of the exemptions (and even broader in some translations of the directive)

Germany had the most aggressive approach and spent a lot of time arguing the importance of the fact that Bitcoin is not legal tender. They also tried to downplay the importance of Bitcoin in general by calling it a "niche product", saying that it doesn't have a fixed monetary value, that we shouldn't expect it to grow much bigger etc. Some of this was misleading or simply wrong - for example, they quoted statistics from 2012 (which we made sure to comment on) and also referenced the fact that there will “only” be 21 million bitcoins (the translation to Swedish wasn't really clear here so I am not sure exactly what point they were trying to make).

In general Germany is trying to specifically target each part of the exemptions and explain why bitcoin doesn't fit in (but without saying much about “other negotiable instruments”) while the European Commission has a more holistic approach and notes that because of the very nature of bitcoin it is clearly a case of financial transactions, that should be exempt.

All parties referenced the case of Granton Advertising but with different angles, trying to interpret the ruling and comments in that case in their favor.

The opinion of the advocate general will be published on July 16th. You can read more about the process here.