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VAT treatment of virtual currencies

Deloitte Malta Tax Alert

AG Opinion in CJEU Hedqvist case (C-264/14)

Update: Please refer to "judgement made by the CJEU on 22 October 2015" subsequent to the AG’s opinion in this article.

Means of payment

Legislation often fails to keep pace with technological developments. A recent example of regulators lagging behind is the appearance of cryptocurrencies with bitcoins as their most prominent representative. Since the EU VAT Directive does not contain any provisions on cryptocurrencies, there is a lot of uncertainty as to how virtual currency exchange transactions should be treated for VAT purposes, and the approach adopted by tax authorities differs from Member State to Member State. Clarification on this matter is thus much needed.

In this respect, in June 2014, the Swedish Supreme Administrative Court referred certain questions for interpretation to the Court of Justice of the European Union (CJEU). The Advocate General now delivered her Opinion in this case, finding that virtual currencies, such as bitcoin, should be considered a means of payment so that the exchange of virtual currency against legal tender must be treated as VAT exempt in terms of article 135(1)(e) of the EU VAT Directive.

The Opinion is not binding upon the Court but, given the fact that the Court in approximately 80% of the cases follows the AG Opinion, gives an indication of where the Court may take this to. The actual Court judgment is to be expected within a couple of months.

For the sake of clarity, the Hedqvist case deals with currency exchange transactions (i.e. the exchange of virtual currency for legal tender). When a retailer accepts for example bitcoins as payment for taxable supplies of goods or services, VAT would still be due.

How can Deloitte help?

Deloitte Malta can assist in providing additional information in connection with the tax treatment applied locally to virtual currency exchange transactions. For more information, please do not hesitate to contact Mark Grech or your usual Deloitte Malta contact.

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