Topic: Bitcoin and VAT in the EU (Read 21428 times)

What this means is that it works like EVERYTHING else in trading:

If you buy a crate of apples and pay in oranges, you do not pay VAT on the ORANGES, you pay VAT on the APPLES.
The article explicitely states that "When using BTC as a MEANS OF PAYMENT, that PAYMENT is VAT-exempt" - NOT the goods you are buying!

For whatever reason they had to clarify this is beyond me.

This is indeed bad news. However, there is hope. Let's have a quick look at what §4 Abs 8 b says:


"Gesetzliche Zahlungsmittel" refers to official currencies. As long as there is no country that makes Bitcoin an officially accepted currency, this section does help Bitcoin being exempt from VAT.

However, there is another section just below (§4 Abs 8 d). It says:

This corresponds to Article 135 d of the VAT directive, which exempts the following from VAT:

Here, it clearly says that payments and transfers ("Umsätze im Zahlungs- und Überweisungsverkehr") are exempt from VAT. The question now is: do Bitcoin transfers and Bitcoin payments qualify as payments and transfers in the sense of this directive?

My hope is that this is indeed the case. I'm Swiss and Switzerland has basically the same clause in its law. I know a VAT tax expert who will provide me with the official comment to the law, which hopefully contains further hints.

Just a quick update. The office of Frank Schäffler (a member of the German parliament) forwarded me a letter from the German finance ministry dated last week, which says that Bitcoin is not VAT exempt according to §4. In Abs. 8 b UStG, confirming my previous worries. Their main argument is that BTC is not recognised as a legal tender in any country. Even though the letter does not explicitly say whether other exemptions apply, I suspect they don't. So be careful when trading BTC as a VAT registered company in Germany.

b) die Umsätze und die Vermittlung der Umsätze von gesetzlichen Zahlungsmitteln. Das gilt nicht, wenn die Zahlungsmittel wegen ihres Metallgehalts oder ihres Sammlerwerts umgesetzt werden,

die Umsätze und die Vermittlung der Umsätze im Einlagengeschäft, im Kontokorrentverkehr, im Zahlungs- und Überweisungsverkehr und das Inkasso von Handelspapieren,

transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

The German UStG lists exceptions in §4. In Abs. 8 it lists certain financial services. However I do not see the connection between KWG + ZAG on one hand and UStG on the other. Merely because it looks like they use the same terms, the does not necessarily mean they use the same definitions.

Sadly, I believe there is an unsubstantiated connection. I do not see a reference to UStG, only to KWG.

Currencies are not subject to VAT, but this is only valid for currencies that are legal tender (anywhere, not only the EUR). So if you sell USD in Germany, you do not need to charge VAT. Since Bitcoin is not legal tender anywhere, it is not a currency for the purpose of VAT.

Maybe we can bribe some minicountry to add Bitcoin to the list of what is accepted as legal tender. That would fix the VAT issue.

Thanks wareen for this.

IANAL I disagree the key conclusion is that Bitcoins are financial instruments (Finanzinstrumente) even though Bitcoin does not meet the narrow definition of e-money under the EU directive. This then makes Bitcoins not subject to VAT as financial instruments themselves are not subject to VAT.

wareen,

nice find. However, I think your conclusion is premature. The document and other references do not mention VAT. So the only thing it means that if you pay with bitcoins, or as a merchant accept bitcoins, you do not need a permit in Germany. Which is good. However, it still leaves the question of VAT open. I lean towards the conclusion that the current laws in Germany classify the usage of Bitcoin as barter (Tauschgeschäft) and is subject to VAT. But I'm not a lawyer :-).

Factual limits of the e-money definition in the ZAG:

The term e-money was created in accordance with EU legislatory guidelines which cover only parts of the economic phenomenon of e-money. Regardless of whether computer-, server- or card-based electronic tokens function as money in the economic reality, e-money exists only when they are issued in exchange for an amount of money. Only legal tender or other privately issued payment methods which themselves qualify as e-money according to the ZAG are covered here. Hence, by definition, e-money always derives from legal tender or other e-money.
Tokens of value meant to be used as a method of payment which are issued by barter-clubs, private exchange-rings or other payment systems in exchange for real economic goods or services or like for example Bitcoins, which are issued in computer networks without any service in return, are therefore exempt from the definition of e-money, even though they fulfill the same economic function as e-money and have the actual potential of privately issued currencies.

...

Permission-free are only the usage of such tokens of value as a form of payment and their creation. If these tokens of value are themselves used as a commercial subject, the transaction is classified as either a banking business or a financial service, depending on the exact nature of the transaction. Such transactions are principally subject to reservation of authorization. These tokens of value are units of account and qualify therefore readily as financial instruments.

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.