Business Law Magazine, a German publication, reviewed a European Court of Justice ruling exempting bitcoin from value added tax (VAT) which was hailed as a victory by bitcoin advocates. The article by attorney Heinz Zimmermann noted that bitcoin has seldom been the focus of analyses addressing taxes.

In presenting the court’s decision, the article reviewed the history and workings of bitcoin.

Citizen Sought Clarification

The case was between the Swedish Tax Authority and the nation’s Revenue Law Commission. It commenced after a Swedish citizen asked for clarification of VAT on bitcoin, CCN.com reported. That national, David Hedqvist, sought to open a bitcoin exchange. He operated Bitcoin.se, a Swedish bitcoin information site. Several European bitcoin companies helped pay for Hedqvist’s lawyers.

Advocate Evaluates Facts

Juliane Kokott, German Advocate General at the Court of Justice of the European Union and a professor at the University of St. Gallen, evaluated and analyzed the facts to prepare the subsequent court decision. In her final opinion of July 16, 2015, she examined the question if the exchange service planned by the Swedish entrepreneur should be treated as a taxable remunerated service. She noted the transfer of bitcoins does not fulfill a taxable act.

She also pointed out the transfer of legal payment instruments did not meet the requirements of a fact subject to VAT. In a national economy, payment instruments should only have the purpose of facilitating the exchange of goods.

Kokott concluded that this finding should also be valid for other payment instruments whose function was also exhausted through their respective use. She referred specifically to the principle of tax neutrality as a principle of equality.

The transfer of bitcoins as such would therefore not fulfill a taxable fact.

Arguments from Germany about bitcoins’ lack of stable value and susceptibility to fraud is not convincing, Kokott noted.

Also read: European top court rules bitcoin-currency-trades should be ‘exempt from VAT’

Court Confirms Opinion

The court confirmed the advocate’s opinion that the exchange service planned by the plaintiff should be looked at as a taxable service.

To begin, the court confirmed the opinion that the exchange service planned by the plaintiff had to be looked at as a taxable service.

In particular, however, the court shared Kokott’s opinion with regard to the tax exemption of the exchange service.

The court confirmed for the plaintiff that the exchange of bitcoins as a pure payment instrument was to be treated as a tax-exempt service.

It noted that the German finance authority does not share the opinion of the European Court of Justice. Taxpayers in the future may, however, invoke the European court decision about the treatment of VAT in the exchange of bitcoins. The court decision sent a positive signal regarding the ability to use bitcoins for purchase transactions.

The ruling follows moves by European governments to exempt bitcoin from VAT, such as the United Kingdom.

The European Central Bank (ECB) published a report recognizing virtual currencies growth. The report, “Virtual currency schemes – a further analysis,” contained 37-pages regarding the risk of bitcoin and their uses.

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