European VAT and virtual currencies Roger van de Berg Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm.
What is VAT? Aim is to tax consumption on goods and services Destination country -principle Taxed or exempted? Right to recover VAT In principle, money is nothing for VAT purposes 2
VAT qualification and exemptions (European) VAT legislation is lagging behind on technology, so one must make shift with what one has Bitcoins can not be regarded as electronic money, legal tender, debts, receivables, negotiable instruments or securities for VAT purposes, since the EU definitions are inadequate restricted explanation of VAT exemptions (transactions relating to) bitcoins are taxed? Elegant and practical solutions in e.g. UK, Sweden, Germany 3
Consequences harmonization required? Different interpretations between EU Member States lead to confusion and problems with compliance, invoices and VAT returns Invoicing rules B2B and B2C: identification problems and system issues Taxable amount? (Nat. Bank of Chicago-regime) VAT rate? high, low, zero? Solution to all issues: An EU-harmonized exemption? solution by ECOJ or by European Comission? 4
EU input The Hedqvist-case Case C-264/14 (Hedqvist) a possible solution for exchange sites? whether or not a service for remuneration rendered by a bitcoin (virtual currency) exchange can be treated as a VAT relevant service; and in case the bitcoin (virtual currency) exchange service is VAT relevant, whether a VAT exemption can be applied. questions too narrow? Advocate General: bitcoin can be treated as a "pure payment system" with a similar function to a legal tender, i.e. payments. 5
EU input The Hedqvist-case In relation to the VAT exemption on the transactions of currency, the AG elaborated on the purpose of this VAT exemption, being: preventing that the conversion of legal tender would be more expensive and unattractive due to VAT; a wide definition of currency, as all currencies fall under the scope of this exemption, which is necessary to reach the goal of non-vat taxability on the conversion of currency (legal tender). Based on the purpose of the VAT exemption, the AG concludes that the exchange of legal tender into pure payment methods (currencies), such as bitcoin (and vice versa), can fall within the scope of the VAT exemption. Impact on exchanges & vouchers, uncertainty on mining 6
EU input The VAT committee and ECB ECB report on BTC more positive than the Dutch Central Bank! VAT committee: A common agreement on the VAT treatment of Bitcoin transactions is highly desirable, in order to ensure legal certainty for the users of this instrument, as well as a common and consistent approach across the EU. Unlikely that BTC is e-money, currency, security or voucher: thuis a negotiable instrument or digital (e-commerce) product; Opinion that treating Bitcoin as a negotiable instrument represents at this moment the most suitable solution from a VAT perspective. I have some doubts about this suitable solution 7
The future Jurisdictions tend to go from taxation to no taxation UK, Spain (and hopefully NL and CH) give a good example A pro-active approach towards authorities pays off Recommendations to OECD: a global harmonization for indirect tax purposes is desired although we foresee practical and political difficulties in the short term. The EU may however serve as a catalyst for this process In our view virtual currencies as bitcoin should be treated as comparable to money (and therefore be out of scope for VAT purposes) as they have the same purpose as money from the point of view of how a typical consumer would see and experience it 8
Questions? 9
Thank you 10