The digital currency Bitcoin was created in 2009 in the wake of the financial crisis. The currency can be transferred via peer-to-peer systems and is exchanged into conventional currencies by entrepreneurs and barter exchanges. A Swedish businessman wanted to establish a system of this kind and provoked a dispute between the relevant Swedish commission and a Swedish tax authority. The issue could not be resolved before the Swedish Supreme Administrative Court and was therefore referred to the European Court of Justice. The Court ruled that the exchange of the currency Bitcoin should continue to be subject to the Value added tax is liberated.
Tax-free exchange of Bitcoins
The exchange of conventional currencies into the virtual currency "Bitcoin" remains tax-free. This was decided by the European Court of Justice in Luxembourg on 15 October 2015. The term "Bitcoin" comes from the English language and means "binary digit coin". Bitcoins are part of a globally available payment system and represent a monetary unit. Payments are processed using the peer-to-peer method, i.e. via a network of several computers. Therefore, no central processing point is required, as is the case with traditional banking. The Bitcoin credit is stored in digital "wallets". The market value of Bitcoins is based on the relationship between supply and demand and is not linked to national currency systems or exchange rates. The virtual currency Bitcoin was first described in 2008 and published shortly afterwards. For this purpose a software was distributed, which can be used by participants free of charge. The software manages the decentralized databases in which all transactions are recorded. The fundamental advantage of the Bitcoin system is its geographical freedom, i.e. there are no restrictions other than the availability of an Internet connection.
The decision of the European Court of Justice
The European Court of Justice in Luxembourg ruled in its judgment of 15 October 2015 that the exchange of Bitcoins into conventional currencies remains tax-free. Bitcoins are common Means of payment and also to be considered as such in legal terms. In its judgment, the highest European court referred to a situation that occurred in Sweden. There, a user wanted to implement a business model in which Bitcoins were exchanged into conventional currencies and conventional currencies into Bitcoins. For this reason, he asked the Commission responsible in Sweden whether he had to pay VAT on his services. The Swedish Commission informed him that in principle no VAT was payable on the exchange. The tax authorities took a different view and brought an action before the Swedish Supreme Administrative Court. The Swedish Supreme Administrative Court referred the question to the European Court of Justice and asked for a decision. The background to the strict treatment lies in the properties of Bitcoins. According to a US study, criminals are particularly fond of paying with Bitcoins and the payment system is often used for money laundering. Bitcoins are generally considered controversial because the underlying prices are formed by supply and demand and can fluctuate greatly. The European Court of Justice has stated in its decision (Case C - 264/14) that Bitcoins are to be treated like national currencies and are therefore exempt from VAT. The main argument is that Bitcoins are a traditional means of payment. For the currency Bitcoin per se, the ruling is certainly advantageous: the system is officially recognized and will continue to gain in popularity due to the lack of a sales tax. The Bitcoin currency was invented in the middle of the financial crisis: At the time, the Bitcoin system was intended to complement national monetary systems and create new confidence. The market value is calculated by a complex procedure, which is why Bitcoin's payment systems are very similar to traditional payment systems. Although the European Court of Justice has ruled that the exchange of Bitcoins is still exempt from VAT, profits from currency speculation must be taxed. Speculators are therefore obliged to declare income and losses from currency speculation for tax purposes.
Consequences for the Bitcoin currency system
The Bitcoins currency system will continue to gain acceptance due to the ruling of the European Court of Justice. In recent years, the virtual currency has become increasingly popular. Since July 2014, it has been accepted by the computer company Dell. Donations via Bitcoins have been accepted by the Wikimedia Foundation and Greenpeace since 2014. Furthermore, PayPal offers its merchants the possibility to accept payments via Bitcoins. Bitcoins can be used to pay for goods and services. There are now over 7,000 places where Bitcoins are accepted as payment for restaurants, hotels and the like. At Internet Bitcoins are used, among other things, to pay for gambling, cyberbegging and online striptease. Non-marketable goods, contract killings, drugs and other illegal services are also billed through Bitcoins. Online platforms or local software systems can be used to receive and transfer Bitcoins. On online exchanges Bitcoins can be exchanged for other currencies, paysafecards and e-currencies. This usually incurs fees of between 0.2 and one percent. The professionalism and reliability of the individual providers varies greatly. The easy mobility of Bitcoins and the storage of immense amounts of money provides enormous incentives for hackers to hack a platform. This is why there are repeated break-ins where customers lose all their deposits. Due to this fact some platforms advertise with a liability clause, according to which hacked deposits are completely returned by the exchange operator. When trading Bitcoins there is always a certain risk that trustees or trading partners do not behave honestly. Therefore, only reputable platforms should be used.
