Bitcoin will be treated just like cash in the EU from now on. A ruling from the EU Court of Justice in Luxembourg on Thursday determined that Bitcoin exchange into currency will not have value added tax applied to it.
Clearing this legal hurdle means that Bitcoin can be exchanged for other currencies at prevailing rates without any taxes, and also opens the door for more financial transactions involving Bitcoin in the future.
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More on Thursday EU court ruling on Bitcoin
The EU Court of Justice in Luxembourg ruled Thursday that value added tax (a type of sales tax common in Europe and elsewhere around the globe) did not need to be applied because it involves “the exchange of different means of payment.” The case was brought to the court by a dispute in Sweden, where a David Hedqvist established a paid service for the exchange of mainstream money for Bitcoin.
The Bitcoin digital currency was introduced in 2008 by a programmer or group of programmers using the name Satoshi Nakamoto, and has no central authority. The Bitcoin system uses a public ledger to verify encrypted transactions. It is used more and more frequently by merchants selling legitimate products, but is also commonly used in illegal transactions because it is anonymous.
“Transactions to exchange traditional currencies for units of the bitcoin virtual currency (and vice versa) constitute the supply of services” under the bloc’s law “since they consist of the exchange of different means of payment,” the ruling from the court noted. As such they are exempt from value-added taxes, the ruling continued.
To not permit Bitcoin transactions to enjoy the tax exemptions given to traditional exchanges “would deprive it of part of its effects,” as that the goal is to minimize “the difficulties connected with determining the taxable amount and the amount of VAT deductible” in cases of taxation of financial transactions, the court noted.