The European Court of Justice will rule if bitcoin transactions are subject to its value-added tax rules (VAT).
If that top court decides to impose VAT regulations on member nations with bitcoin businesses, they could suffer an economic setback. Others could miss out on the opportunity to establish business initiatives associated with bitcoin. VAT is one way the EU raises tax revenues. It’s essentially a consumption tax, paid by buyers as part of the purchase price.
That case before the Court is C-264/14 Skatteverket v David Hedqvist and it raises the issue: Do transactions between cryptocurrencies and traditional currencies fall under VAT regulations?
As with all tax policies, this one could wind up actually lessening government revenue by weakening economic momentum. Much of the recovery in the EU has been sluggish.
Any nation such as Denmark which classifies bitcoin trading – both gains and losses – as exempt from taxation can be at a competitive advantage in attracting investors. That taxation policy might even motivate investment firms and serious investors to relocate to that country.
In the US, for example, bitcoin investments are taxed. The law also requires that foreign accounts be disclosed.
Currently, nothing in the EU tax rules, which date back to 1993, applies specifically to digital currencies. The current case arose primarily because of a dispute between David Hedqvist and Sweden’s tax authorities.
Hedqvist’s business objective is to begin to sell bitcoins on his website. At the time, the Swedish tax folks were in the process of challenging a court ruling in Sweden which held that VAT should not be imposed on bitcoin transactions. Hedqvist didn’t want to proceed amid regulatory uncertainty. As a result, the Supreme Administrative Court of Sweden filed a request for clarification on the issue.
In addition to the ruling, the decision from the EU’s highest court will guide central bankers on the authority of taxation agencies in relation to bitcoin. They need that clarification to regulate the relationship of traditional and digital currencies.
The EU Banking Authority has warned banks not to engage in any cryptocurrency transactions until regulators can protect both types of currencies. One fear is that the trading platforms for digital currencies could be hacked.
For solid economic reasons, when the EU’s top court issues its decision, the global currency industries will be paying close attention. Adapted from paymentweek.com