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Written by:
Bas Hollenberg


Value-added tax exemption for bitcoins

The debate as to whether the purchase and sale of bitcoins should or should not be liable for value-added tax has been settled for now by the European Court of Justice, which on 22 October 2015 ruled in favour of exemption.

Bitcoin is a virtual currency which is created and held electronically by its own creators. This makes it a digital currency that does not come under any regulatory system. Virtual currencies are different from electronic cash in that rather than being denominated in traditional units such as dollars or euros, they are denominated in bitcoins or some other virtual unit of account.

Court Case

A business whose operations would consist in the purchase and sale of bitcoins in exchange for traditional currencies: this was the plan Swedish entrepreneur David Hedqvist had come up with, and so he petitioned the committee for fiscal issues with the request that it should provide him with a preliminary advice as regarded any value-added tax consequences he might have to make allowances for in his business strategy. The committee duly ruled that the service Hedqvist intended to market for valuable consideration should be exempt from value-added tax.

The (European) Value Added Tax Directive provides for legal tender exemption restriction. The restriction in question applies to bank notes and coins, but does not by contrast extend to include currencies, as exemption as such is aimed at facilitating the levying of value-added tax on financial services. Should the bitcoin be designated legal tender and thus come under the exemption regime as per the Value Added Tax Directive?


According to the EU Court, the virtual currency lacks tangibility and as a service should have lability for value-added tax attributed to it. A direct correlation should be in evidence between the service and consideration in exchange for fees. Hedqvist and his parties of the other part, the Court assessed, were deemed to entertain a mutual juristic relationship in the context of which one of the parties had committed itself to transferring euros, dollars or other “regular” currencies in exchange for bitcoins and vice versa. It could not but follow that Hedqvist’s operations qualified as services provided for valuable consideration.

Reference was made to Article 135(1) sub (d) of the Value Added Tax Directive where it concerned the question as to whether the relevant services should be exempted from value-added tax, as follows:

135(1) Member States shall exempt the following transactions:


(d)    transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

(e)    transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest;

(f)      transactions, including negotiation but not management or safe-keeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);

The Court then homed in on the scope of Article 135(1) sub (e), where it is expressly stipulated that “currency, bank notes and coins used as legal tender” should be exempt from value-added tax. In line with the conclusion presented by Dr Juliane Kokott, the German Advocate General to the EU Court (no. C‑264/14, ECLI:EU:C:2015:498), the Court argued that a literal interpretation of the paragraph in question could not be deemed to suffice, it being necessary instead to look into the context as well as the object of the Value Added Tax Directive, with fiscal neutrality rendering it inevitable that a proper instrument of payment even though it had non-legal tender status should qualify for value-added tax exemption, as should all payment instruments (rather than just those used throughout the EU). In so far as bitcoins had come to be accepted in the market, they should be deemed to have gained the status of proper payment instrument boasting the same payment role as the traditional currencies. The EU Court for good measure added that bitcoins did not come under Article 135(1) sub (f) of the Value Added Tax Directive.

All of which led the Court to conclude that in so far as bitcoins were being purchased using “regular money”, or were being sold, the transactions in question should not be liable for value-added tax. As set out in paragraph (e) of Article 135(1) of the Value Added Tax Directive, the EU Member States are to exempt all transactions involving legal tender from value-added tax. It follows that the exemption clause should likewise apply to bitcoin-based transactions.

Money transfer digitisation and the democratisation of monetary systems have added an element of piquancy to the EU Court’s ruling, in that electronic money may well end up revolutionising everyday life, much like the Internet before it!

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