I have tried to sort out what applies regarding Bitcoin and VAT in Sweden and since some of the rules regarding VAT are harmonized within EU I thought that I'd share this in order to get some feedback from other EU citizens. These are my conclusions (I'm not an expert in this field so feel free to point out any errors or terms that I use incorrectly):
* Finansinspektionen ("Financial Services Authority"?) in Sweden tell me that they do not consider Bitcoin a currency.
* The Swedish Tax Agency tell me that I should treat Bitcoin as an "electronic service".
Everything that is delivered electronically is considered a "service" instead of a "commodity", there are a few differences in taxation but I don't think that's what's important here. What's important is that since Bitcoin is not considered a currency a purchase with bitcoins will be considered barter. In barter, one should look each transaction separately so that if e.g. a customer (private individual) buys a table from a company and pays with bitcoins these 2 transactions should be considered:
1. The customer bought a table from the company
2. The company bought some bitcoins from the customer
I the first transaction VAT is added by the company and recorded as output VAT. In the second transaction there is no VAT since the purchase is from a private individual. Later when the company wants to get rid of the bitcoins this will be considered a sale of bitcoins (regardless of whether they are exchanged for some currency or if something is bought using them) and then VAT should be added to the sale and recorded as output VAT.
From what I can understand this is a bit problematic. It will be hard for the company to exchange the bitcoins since they must add VAT (in Sweden this is 25%) to the "sale". No private individual will buy at that price since they can buy from eachother with no VAT. Some other company could possibly buy them since they can deduct the VAT but at some point some company will have to return the bitcoins to an individual.
Have other people in the EU reached similar conclusions? If my conclusions are correct it is a pretty big obstacle in getting merchants to start accepting Bitcoin.
For Swedish readers, I have started a similar topic in Swedish at bitcoin.se.
* Finansinspektionen ("Financial Services Authority"?) in Sweden tell me that they do not consider Bitcoin a currency.
* The Swedish Tax Agency tell me that I should treat Bitcoin as an "electronic service".
Everything that is delivered electronically is considered a "service" instead of a "commodity", there are a few differences in taxation but I don't think that's what's important here. What's important is that since Bitcoin is not considered a currency a purchase with bitcoins will be considered barter. In barter, one should look each transaction separately so that if e.g. a customer (private individual) buys a table from a company and pays with bitcoins these 2 transactions should be considered:
1. The customer bought a table from the company
2. The company bought some bitcoins from the customer
I the first transaction VAT is added by the company and recorded as output VAT. In the second transaction there is no VAT since the purchase is from a private individual. Later when the company wants to get rid of the bitcoins this will be considered a sale of bitcoins (regardless of whether they are exchanged for some currency or if something is bought using them) and then VAT should be added to the sale and recorded as output VAT.
From what I can understand this is a bit problematic. It will be hard for the company to exchange the bitcoins since they must add VAT (in Sweden this is 25%) to the "sale". No private individual will buy at that price since they can buy from eachother with no VAT. Some other company could possibly buy them since they can deduct the VAT but at some point some company will have to return the bitcoins to an individual.
Have other people in the EU reached similar conclusions? If my conclusions are correct it is a pretty big obstacle in getting merchants to start accepting Bitcoin.
For Swedish readers, I have started a similar topic in Swedish at bitcoin.se.
There is a very critical flaw in this argument especially in the case of Sweden. The "private individual" is no longer a consumer but is in fact a business that is selling Bitcoin and has to register for VAT. Sweden has in fact one of the lowest minimum thresholds for VAT/GST registration in the OECD http://www.oecd.org/dataoecd/12/12/34674438.xls at 30000 SEK or approx 840 BTC at current rates! In a Bitcoin only economy every transaction would have equally compensating input and output VAT credits and equal amounts of VAT charged by each party effectively negating the VAT.
The bottom line if that if the tax authorities choose to treat Bitcoin as a "digital service" they have essentially created a huge loophole for VAT avoidance simply by registering for VAT and then using Bitcoin for every transaction.
The Australian Tax Authorities have opened the door to wide scale avoidance and evasion of the GST as I pointed out back in 2012. Taxes such as GST and VAT will simply not work if the medium of exchange is subject to the tax. Sometimes the best way to teach a bureaucracy a stiff lesson is to strictly follow the letter of the law.
