October 22, 2015 - Assignment

EU Court exempts bitcoin from sales tax

The Court of Justice of the European Union has ruled that services including the digital currency bitcoin should be exempt from sales taxes within the 28-country bloc and that there is no reason to treat bitcoin differently than other transactions involving currency, bank notes and coins used as legal tender.

The EU court made its ruling following an application from David Hedqvist, a Swedish citizen wanting to provide a service on the exchange of bitcoin with other traditional currencies with the arguments that the service should be tax-free.

David Hedqvist was represented by Mannheimer Swartling in the matter. The firm’s team was led by Fredrik Berndt, who also participated in the proceedings before the Court of Justice of the European Union.

Background

Gothenburg-based entrepreneur David Hedqvist applied for a preliminary decision from Sweden’s Council for Advance Tax Rulings (“Skatterättsnämnden”) before an impending start-up of a bitcoin exchange operation. The Council, which announced its preliminary decision on 14 October 2013, held that the services would be exempted from value added tax. The Swedish Tax Agency (“Skatteverket”) took the opposite view and appealed against the preliminary decision to Sweden’s Supreme Administrative Court, which referred the matter to the Court of Justice of the European Union for a preliminary ruling. A hearing of the matter was held in the EU court on 17 June 2015.

The ruling from the EU court on 22 October 2015 sets a precedent for the value added tax treatment of bitcoins in Europe and has attracted significant interest from the world’s leading platforms for the supply of bitcoins. Several EU member states also intervened in the process and were present at the hearing on 17 June 2015. In addition to David Hedqvist, the European Commission and Sweden and Germany were represented. The European Commission argued that services should be exempt, while Sweden and Germany pleaded for the services not to be exempted. Estonia had also in a written opinion opposed the services being exempted.