In a long-awaited ruling, the EU Court of Justice said on Thursday (22 October) that exchanging traditional currency for the digital currency bitcoin online should be exempt from consumption taxes just like other transactions of traditional currency.
Europe’s highest court ruled in response to a request by Swedish tax authorities, who had argued bitcoin transactions should not be covered by a European Union directive exempting currency transactions from value added tax (VAT). However, a Swedish Court considered that bitcoins should be exempt from VAT and decided to refer the case to the EU judges.
The court ruled that bitcoins should be treated as a means of payment, and as such were protected under the directive.
“Those transactions are exempt from VAT under the provision concerning transactions relating to ‘currency, bank notes and coins used as legal tender’,” the ECJ concluded.
In July, Court Advocate General Juliane Kokott recommended bitcoin exchanges be exempt from the VAT requirement.
Bitcoins are a peer-to-peer payment system and digital currency introduced as open source software in 2009 by developer Satoshi Nakamoto.
Conventionally, the capitalised word "Bitcoin" refers to the technology and network, whereas lowercase "bitcoin" refers to the currency itself.
Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities. In 2013 the American FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time.
The US is considered Bitcoin-friendly compared to other governments, however. In China new rules restrict bitcoin exchange for local currency.
The European Banking Authority has warned that Bitcoin lacks consumer protections. Bitcoins can be stolen and chargebacks are impossible.