A long-awaited court decision on whether bitcoin exchanges in Europe will be required to pay value-added tax (VAT) on trades is set to be handed down on Thursday.
The decision will mark the conclusion of a journey that began with a dispute over whether services that buy and sell bitcoins should be charged VAT. The inquiries were prompted after David Hedqvist, a resident of Sweden, asked for a policy clarification on how bitcoin should be taxed as he prepared to open a bitcoin brokerage.
A Swedish court later found that such activities should be exempt from VAT – a decision disputed by the Skatterverket, the country's tax authority. Ultimately, the European Court of Justice was asked to weigh in.
While the court has yet to make a decision, early indications suggest the court may rule in favor of an exemption. In July, Court Advocate General Juliane Kokott recommended bitcoin exchanges be exempt from the VAT requirement. At the time, industry stakeholders and members of the wider community cheered the move.
According to some observers, the decision could extend beyond the specific questions before it, potentially impacting Europe's bitcoin users and industry stakeholders.
“In order to answer the question regarding exchange services, the ECJ might reason that it first needs to assess what such an exchange is actually doing and how the underlying assets should be qualified,” tax attorney Roger Van de Berg of Baker & McKenzie told Bitcoin Magazine in a recent interview.
“As such, it might also investigate the VAT treatment of virtual currencies and thus decide whether or not bitcoin itself is subject to VAT," he continued. "If that happens, we have a clear answer from the ECJ of where bitcoin stands for VAT purposes within the EU."