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Today brought a great piece of news for Bitcoin exchanges across the European Union, as the European Court of Justice (ECJ) has ruled that exchanging traditional currencies for Bitcoin should be exempt from consumption taxes like value added tax (VAT).
The ruling was made in response to a case that originally arose in Sweden, leading to the Swedish tax authorities to turn to the top EU court to decide on whether Bitcoin transactions should be covered by a European Union directive exempting currency transactions from VAT. Whereas the Swedish authorities had argued that the EU directive should not apply to digital currency transactions, the ECJ said that it should cover such transactions.
The court ruled that Bitcoin should be treated as a means of payment, and as such should be protected under the directive.
A report by Reuters quoted the ECJ:
“Those transactions are exempt from VAT under the provision concerning transactions relating to ‘currency, bank notes and coins used as legal tender’ “.
Michael Kent, CEO & Founder of digital money transfer company Azimo, commented on the ECJ ruling:
“The fact that the EU court is even ruling on whether Bitcoin should be VAT exempt or not is another big step forward in recognition for digital currencies. Doubts still remain around anonymity and security, which have so far prevented more widespread adoption, but following Bitcoins commoditisation in the US, I’m not surprised the EU Court’s move to rule. If the EU follows this decision up with plans to regulate Bitcoin that will be the real game-changer.
“Otherwise while crypto currencies’ low costs and faster speeds of exchange have huge potential, it’s the backend blockchain technology that we’ll first see go mainstream speeding up the international delivery of funds in place of services like SWIFT for financial institutions and corporations alike,” he added.
Earlier this year, the European Banking Authority (EBA) published a study, unveiling its detailed perspective relating to digital currencies such as Bitcoin. While some potential benefits of virtual currencies were identified, such as reduced transaction costs, faster transaction speed and financial inclusion, more than 70 risks were enlisted, including ones concerning money laundering and other financial crime.
The final chapter of the EBA study concludes by proposing an immediate regulatory response and a potential response for the long term, including a full definition of what constitutes a Bitcoin exchange, and a closer look at potential advantages of allowing the full, continent-wide use of virtual currencies across those exchanges.