The European Union's Court of Justice Advocate exempted bitcoin trading from Europe's value-added tax (VAT). The Luxembourg-based tribunal heard arguments from Estonia, Germany and Sweden before reaching the July 16, 2015, decision. These parties and the European Banking Authority had petitioned the court for guidance on taxing digital currencies. In the absence of an English trial transcript, analysts used Google translation tools to review the ruling. They concluded that European authorities could find no legal precedent for taxing digital exchange conversions between digital money and fiat currencies. The ruling stipulates that digital currency products are created outside of the traditional banking system and therefore not subject to the same rules as fiat currencies. The ruling further instructs European member states to render all virtual currency transactions tax exempt including "payments, transfers, debts, checks and other negotiable instruments, but excluding debt collection." This action is a big win for Swedish entrepreneur David Hedqvist, who wanted to sell bitcoins on his website and initially asked Swedish tax authorities to clarify bitcoin's taxable status. This matter and similar cases in Estonia and Germany were escalated to the EU when regional authorities in their respective member states failed to adequately define taxation parameters. Financial analysts expect the ruling to advance bitcoin adoption throughout the EU. Analysts and digital currency stakeholders anticipate that growing awareness of bitcoin's tax exempt status, combined with growing acceptance of bitcoin and other digital currencies at online and brick-and-mortar establishments, will create a tipping point for consumers and merchants. Jack Jia, Operations Manager at San Francisco-based Snapcard has seen digital currency acceptance vary by region. Emerging economies have been faster than developed nations to adopt bitcoin and digital currencies, he stated. "Credit cards are popular in the U.S., where consumers get points, rewards and cash back," he said. "But in developing countries like Argentina and Brazil, where currencies have been devalued against the dollar, consumers find it useful to have a democratized currency that is essentially free and supported by everyone." While digital currencies are a relatively new phenomenon, there is evidence of potential use cases for these technologies beyond the payments ecosystem. Here are several examples: Swan believes any digital asset, regardless of its size, could be registered in the blockchain, adding it to a public record and effectively protecting its intellectual property. Dr. Irving Wladawsky-Berger, Chairman Emeritus at the IBM Academy of Technology, attributes growing adoption of digital currencies to the evolution of the Internet, which has transformed the way we communicate and conduct business day to day. "Now we're in a major next stage in the evolution of the Internet with digital money, digital payment and digital identity," he said, noting the disparity between banks, which are "conservative by nature, reacting at their own rate and pace," and technology companies that "move at the rate and pace of technology." The cultural clash between slow-moving financial industries and fast-moving technology and telecommunications companies has been exacerbated by "the great new world of cryptocurrencies" and their new infrastructures such as blockchain. These digital currencies facilitate financial transactions and payments without a central banking authority. "Instead, the cryptocurrencies use very sophisticated peer-to-peer protocols to handle their transactions in very different ways," he stated. Wladawsky-Berger also noted that bitcoin is the most famous cryptocurrency and its standardized protocols and open source implementation make it widely accessible. However, bitcoin is "only one of hundreds of such digital currencies that are being invented all over the world," he said. The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information. Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
This report suggests that the recent ruling by the European Court of Justice, that Bitcoin and other digital currencies ought to be exempt from VAT, will cause the use of digital currencies to become more widespread across Europe. The Commission has been considering whether or not it should apply VAT on virtual currencies, such as bitcoin, for some time.