European Union considers VAT issues with internet-based currencies
 preliminary ruling on whether when...)
The Swedish Supreme Administrative Court have asked from European Court of Justice (C-264/14 Skatteverket v. David Hedqvist) preliminary ruling on whether when exchanging internet based currencies from ordinary currency or vice versa and the gain received should be subject to Value Added Tax under VAT Directive (2006/112/EC) of European Union.
Crypto Currencies and Bitcoin
Internet based currencies ‘crypto currencies’ such as Bitcoin have become more and more popular from the year 2009 when Bitcoin was founded. The idea behind crypto currencies is that no bank or other institution is governing the currency. The value of the currency is determined by supply and demand. Crypto currencies are not illegal, but other legal issues along with taxation it arises. Bank transfers are hard to trace, so crypto currencies may be used for illegal purposes.
Bitcoin and European Union
European Union does not have common view over crypto currencies. Estonia’s view for crypto currencies is that any trading activity should be subject to VAT. The situation is currently that states apply their legislation without the knowledge of how the European Union legislation will fit to crypto-currencies For example, Estonia applied its own VAT law to these currencies in Spring 2014. Bitcoins and other similar currencies are now in Estonia taxed with standard rate 20%. Also, according Estonian legislation, Bitcoin is treated as a property and it falls under scope of Income tax act. Lithuania has also imposed tax for crypto currencies, but the tax is not related to VAT. Lithuania taxes Bitcoins as personal income and has tax percentage of 5. Latvia hasn’t acted anything regarding crypto currencies, but national bank of Latvia has warned investing in Bitcoins. Latvia is showing mixed signals as state-owned (99,8%) airline AirBaltic announced that Bitcoins are accepted.
The time of uncertainty of how to tax correctly ‘crypto currencies’ and especially Bitcoins might continue even years. The ECJ is making precedence, but it may take years before ECJ is able to the make decision. Until that decision the European Union member states are applying their own legislation as well as they can to fulfil EU objectives.
Tony Koivula, attorney at law of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Tax Law in Latvia, Lithuania, Estonia.
T: +372 61 91 000
F: +372 61 91 007