Europe’s VAT Landscape Taking Shape as Spain Exempts Bitcoin

The General Directorate of Taxes (DGT) has announced that virtual currencies such as bitcoin will be exempt from value-added tax (VAT) in Spain, following the leads of the United Kingdom and Germany, who recently stated that they are considering taking bitcoin as a complementary currency.

In response to the Binding Consultation V1029-15 submitted on the March 27, 2015, the DGT has announced that virtual currencies, which are considered to be a medium of payment, will be classified as financial services rather than simple goods or commodities. Under the “DIRECTIVE 2006/112/EC of November 28, 2006 on the common system of Value added Tax,” bitcoin has been exempted from VAT in Spain.

Under article 135.1.d of the Council Directive 2006/112/EC, virtual currencies such as bitcoin, which holds the purpose of allowing the transfer of money and has the features of a means of payment, is also considered as a unique concept of “other negotiable instruments,” and is therefore exempt from VAT.

Paragraph (h) of article 20.18 of the VAT Act clearly states that bitcoin transactions are exempted from VAT, specifically:

"Transactions regarding transfers, money orders, check, promissory notes, bills of exchange, debit or credit cards and other payment orders" [emphasis added].

Apart from Spain, other European nations have taken a giant step toward considering bitcoin as a legal medium of payment, or at least as a complementary currency. These countries include Germany, the United Kingdom, France, Finland and Belgium.

Germany

According to the German Minister of Finance in a consultation with Deputy Frank Schaeffler, bitcoin could be considered to be “private money,” or a complementary currency. Although bitcoin has not been exempted from VAT as a foreign currency, VAT exemption for transactions, transfers and other features as a payment instrument may be considered in the near future.

United Kingdom

During the first quarter of 2014, the British taxing authorities stated in the “Revenue and Customs Brief 9/14” that income generated from bitcoin mining activities would be exempted from VAT, as bitcoin mining does not “constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.”

Additionally, exchanging bitcoin for the British pound or for other foreign currencies will be exempt from VAT.

France

The French Minister of Finance, Michel Sapin announced “as for VAT, France will support at the European level a tax exemption, in order to avoid reiterating the unfortunate experience of the massive VAT fraud over CO2 quotas.”

The announcement of the DGT in Spain has clearly classified the purpose of bitcoin and how it is used as a medium of payment rather than as simple “commodities.” Such clarification may influence other European nations to consider bitcoin as a legal means of payment, and to understand its purpose.

The clarification of the aforementioned countries’ VAT positions could not only facilitate bitcoin adoption and awareness across the EU, but could also create better conditions for Bitcoin start-ups who would not have to deal with increased friction and accounting issues, while legally operating under clear and defined guidelines for businesses.

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