"e) Transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest";
In particular, this exemption requires a connection with legal tenders. However, given that the European Directives are enacted in different languages, there are differences between those versions. In this context, it is difficult to determine if the exemption just apply to legal tenders (like in the English version) or other means of payment and currencies.
- English version: These version uses the terms "currency, bank notes and coins". Consequently, in this version, any kind of money and means of payment would be covered, not just foreign legal tenders.
- German Version: This one uses the term "Devisen […], die gesetzliches Zahlungsmittel sind". The abovementioned means that the exemption applies just for legal tenders.
- Spanish Version: Uses the term "medios legales de pago" (legal tender).
- Finnish Version: This one uses a large concept of mean of payment, including any currency (like Bitcoin). Consequently, Bitcoin should be VAT exempted according to this version.
- Italian Version: According to this version, transactions related to means of payment with “discharging effects” (“con valore liberatiorio”). Therefore, given that this version does not use the term “legal tender” (“de corso legale”). Consequently, Bitcoin exchange activities should VAT exempted under this translation too.
As we may note, there are substantial differences between those versions of the Directive. Hence, the Advocate General states that this issue should be solved according to the main purpose of the exemption. In this sense, it should be determined if exchange activities of non-legal means of payment (but considered pure means of payment) should be exempted under the Directive.
Up until now, we have not seen any ruling submitted by the ECJ regarding this particular exemption. Therefore, the Advocate General give us her opinion:
"The main purpose of any VAT exemption is the reduction of costs of the transaction. In the current situation, the transaction consists on a supply of services related to pure means of payment. The main purpose of the exemption of the financial transactions related to means of payment/legal tender, under my opinion, is not to obstruct the convertibility of the pure means of payment with their VAT taxation. This is also important for the internal market, given that if a border provision of services need a currency exchange, the VAT taxation related to that services would be unnecessarily more expensive than imports”.
But this exemption is not limited to European legal tenders: every legal tender in the world is exempted under the VAT regulation. Consequently, we can confirm that the main purpose of the article 135.1 e) of the Directive is to permit that every legal tender/mean of payment could be converted at the lowest possible cost, for the stake of a smooth payment circulation.
According to the above, the activity of exchange legal tender for pure means of payment should be VAT exempted. Indeed, if there are means of payment which serve the same purpose as legal tender, the VAT taxation for this exchange would imply an additional charge to the payment circulation”.
The abovementioned means the following: Even if Bitcoin is not a legal tender, it is used in the course of trade with the same role as legal tenders. Consequently, taxing (referring to VAT) those transactions would imply unjustified additional charges.
This argument should be understood according to the principle of tax neutrality, which states the following: Two identical situations should be taxed in the same way. Accordingly, in order to justify a different treatment, those situations should have substantial differences. In this context, as the Advocate General explains, there are no substantial differences between the exchange of legal tenders and the exchange of "pure" means of payment.
Thinking back, considering the main purpose of the exemption and that Bitcoin serves the same purpose of legal tenders, it should be understood that Bitcoin exchange activities should be VAT liable but exempt. On the other hand, Bitcoin transactions, in general, are no subject to VAT regulation.