Estonia has reaffirmed its view that Value Added Tax (VAT) should be applied to the full amount of bitcoin trades, rather than to merely the commission or service fee.
The opinion was submitted as part of an ongoing bitcoin tax case currently before the European Court of Justice (ECJ), according to a report, and is in line with a previous statement by the country’s tax authority.
The ECJ case was launched in June, after Swedish regulators decided they could not address the issue on their own. The regulators asked the ECJ to arbitrate a dispute between the Swedish tax authority (Skatteverket) and private defendant David Hedqvist.
The case revolves around a basic question: whether or not VAT is applicable to bitcoin under the union’s VAT directive, which outlines which transactions should be subject to VAT.
Hedqvist, a moderator of the Scandinavian section of bitcointalk.org and a member of several bitcoin online communities, is of the opinion that bitcoin should be exempt.
The Swedish tax authority, however, maintains that bitcoin is not VAT exempt under the provisions of Article 135 of the Council Directive on The Common System of Value Added Tax.
However, Hedqvist says the European Commission is against the idea of imposing VAT on digital currency transactions and is hopeful of his chances in the ruling.
In his latest update published on Bitcoin.se, Hedqvist said the case is progressing and described Estonia’s decision to submit opinions as bad news.
“The good news is that the European Commission shares our view. Included in the submission from the European Commission is also the ‘preliminary view’ of the United Kingdom and they are also in favour of VAT exemption,” he wrote.
While there is possibility of an oral hearing before the court, Hedqvist indicated he will only request one if he manages to secure funding for legal representation. Crowdfunding was ruled out as a funding option, but he appealed for financial help in a separate post.
Hedqvist told CoinDesk he does not know whether he will be able to raise the necessary funds, but that he is optimistic about the outcome of the case:
“I’m quite optimistic about our chances – ie: that there will be no VAT on commission/fee – and it is great to see that the EU commission supports that view, but everything is just speculation at this point obviously. VAT on the full bitcoin amount (like Estonia seems to want) would obviously be catastrophic, as it would make bitcoin pretty much unusable as a currency. That outcome seems very unlikely though, not even my counterpart, Skatteverket, wants that.”
Support at home
Mathias Sundin, a Swedish member of parliament who was elected on a pro-bitcoin platform, told CoinDesk that VAT on bitcoin transactions would be a blow to the Swedish cryptocurrency industry.
“It’s positive this is now being tested at the highest EU judicial level. It is also very positive that the European Commission has the same view as David Hedqvist. I hope someone steps forward and helps David with the financing for the oral hearing before the court,” he said.
The Swedish Parliament, Sundin added, will host a discussion on bitcoin next week and that he had personally invited leading Swedish banks to attend.
“The banks have rejected bitcoin companies as costumers, so we will get them in the same room – banks and bitcoin companies – and discuss the issues. This is new ground for the banks and they are very cautious.”
See the official Estonia opinion document below (Estonian language).
European justice image via Shutterstock