Law & Bitcoin has the honour of being the first one asserting the following: Bitcoin is exempt from VAT in Spain!
The General Directorate of Taxes (hereinafter DGT), an dependant on the Spanish taxing authorities, in a response to a binding consultation submitted on 30 March 2015 , has stated that virtual currencies, which works as a mean of payment, shall be classified as financial services. Consequently, transactions with Bitcoin are considered exempt from VAT under the COUNCIL DIRECTIVE 2006/112/EC of 28 November 2006 on the common system of Value added Tax (hereinafter, the Directive) .
The abovementioned consultation concludes as follows:
“Therefore, we can conclude from the Granton Advertising jugment, that de concept “other negotiable instruments” under the article 135.1.d) of the Council Directive 2006/112/EC, is closely related to payment instruments, which allows the transfer of money. Consequently, those financial services shall be deemed to be VAT exempt.
Virtual currencies, such as Bitcoin, work as mean of payment and, considering its features, shall be considered under the concept “other negotiable instruments”, so its transmission is both liable and exempt from Value Added Tax (VAT)”
This consultation is of great importance, given that, in addition to confirm the VAT exemption of Bitcoin transactions, it gives us a legal alignment less ambiguous than what we had up to now. This argument is not unfamiliar in the European Union. In this context, Germany, France, Finland, United Kingdom and Belgium have taken the step of stating the VAT exemption for Bitcoin transactions and approaching the legal status of the Bitcoin transactions to the “means of payment”, instead of considering Bitcoin as simple goods or commodities. To this extent, the decisions carried out by the Spanish authorities with this regard are the following:
- Consultation of the General Directorate of Gambling Regulation (hereinafter, DGOJ), SUG/00239, of 15 april 2014, regarding betting with Bitcoin
- Consultation of the ICAC, rmr/38.14
While the DGOJ has ruled out the possibility of considering Bitcoin as legal tender, the DGT is considering it as a recognised payment instrument, making easier to consider Bitcoin as a legal currency, with the resulting legal consequences. As previously stated, with, Germany, France, United Kingdom, Belgium and Finland, and now, Spain, we can count six Member States of the European Union taking the stance of stating that Bitcoin transactions are VAT exempt. These states are agree with considering that Bitcoin shall be deemed to be a financial services and, as such, they are covered under the article 135 of the Directive, which states the following:1. Member States shall exempt the following transactions: … (c) the negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit; (d) transactions, including negotiation, concerning deposit and curren accounts, payments, transfers, debts, checks and other negotiable instruments, but excluding debt collection; (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 or bank notes which are not normally used as legal tender or cons of numismatic interest;
It seems that those States are forming an homogenous criteria with regards the interpretation of the Directive, in order to include Bitcoin transactions under the concept “financial services” and, consequently, being exempt from VAT, as previously stated. However, we should highlight that not all the Member States of the EU are agree with this interpretation. In this context, Estonia and Poland have announced that the abovementioned exemption does not cover Bitcoin transactions, given that Estonian and Polish taxing authorities make and strict interpretation of the concept “financial services” as regard the article 135.1 of the Directive.
Reasoning of the Consultation
The consultation of the DGT, of 27 March 2015, bases its argumentation on the Granton Advertising judgment of the Court of Justice of the European Union, in order to state the VAT exemption of Bitcoin transactions, which is about a request for a preliminary ruling in relation with the interpretation of Sixth Council Directive 77/388/EEC of 17 May 1977 (amended by, the previously referred, Council Directive 2006/112/CE ) (hereinafter, the Sixth Directive) as regards the VAT taxation of the selling of discount cards (Granton cards) by Granton Advertising BV (hereinafter, Granton Advertising).
Granton cards were sold to consumers, entitling them to a certain number of goods and services on the preferential terms (discounts) from retailers and businesses, such as restaurants, cinemas, hotels or saunas, which had concluded an agreement to that effect with Granton Advertising. In addition, the Granton cards were transferable, but they could not, however, be exchanged for money or goods.
Against this background, the national court asks, in essence, whether Article 13(B)(d) of the Sixth Directive must be interpreted as meaning that the sale of a discount card, such as Granton cards, constitutes a transaction in “other securities” or concerning “other negotiable instruments” within the meaning, respectively, of paragraphs 5 and 3 of that provision, which refers to certain transactions that the Member States must exempt for VAT. The abovementioned consultation of the Spanish DGT focuses on the concept “other negotiable instruments” in order to argue the VAT exemption of Bitcoin transactions.
Whether the Granton cards fall with the scope of the concept of “other negotiable instruments”
The exempt transactions regarding “other negotiable instruments” fall with the scope of financial transactions and, in particular, it refers to means of payment, such as checks. The Court of Justice concludes that, although the Granton cards entitle their holder to price reductions, they do not constitute in themselves a payment instrument for the purpose of the Directive. Definitely, the mode of operation of those cards does not imply any transfer of money and, therefore, the exemptions stated in the Directive do not apply.
The Spanish DGT (quite rightly, in our opinion) uses this judgment in order to conclude that the concept “other negotiable instruments”, referred in the article 135.1.d of the Directive is closely linked with payment instruments, which allows the transfer of money and, as such, this kind of transactions shall be deemed to be VAT exempt. The consultation ends stating that virtual currencies, such as Bitcoin, works as mean of payment and, therefore, they shall be considered under the concept “other negotiable instruments” and, consequently, the VAT exemption 135.1 of the Directive shall apply.
Value Added Tax Act
For those who are not familiar with the legal world, EU Directives, such as the Directive 2006/112/EC, are legal provisions of European law, which binds the Member States of the EU. Nevertheless, the States are entitled to determine the ways and means of implementation of the relevant Directive. In Spain, the referred Directive has been transposed under the Law 37/1992, 28 December, of the Value Added Tax -Spanish Value Added Tax Act- (VAT Act).
The paragraph h) of the article 20.18th of the VAT act allows the application of the VAT exemption of Bitcoin transactions, as “mean of payment”, in the same way as the Directive. The referred article states the following:“One. The following services are VAT exempt: … 18th The following financial services: h) Transactions regarding transfers, money orders, check, promissory notes, bills of exchange, debit or credit cards and other payment orders.”
Incompatibility of VAT with Transfer Tax
A further interesting and advantageous consequence of the consultation is the non-existence of tax liability under the Spanish Transfer Tax, given that we can assert that Bitcoin is subject to VAT (subject and exempt) and the Transfer Tax is incompatible with Value Added Tax. This incompatibility is stated in the following provisions:
- Article 1.One.Four of VAT Act:
- Article 7.5 of the Transfer Tax Act [“Ley del Impuesto sobre Transmisiones Patrimoniales Onerosas y Actos Jurídicos Documentados“]:
If we can conclude that Bitcoin is a mean of payment, the theories of certain authors, such as Carlos Gómez Jiménez, Spanish Tax Inspector, in his essay “Bitcoin y su tributación”, should be undermined. Mr. Gómez Jiménez considered that Bitcoin is not a mean of payment, given that it has not the status of legal payment system and it is not a mean of payment generally accepted. In addition, he highlight that the referred VAT exemption for financial services of the Article 20.One.18.j of the VAT Act regarding purchases, “sales or exchanges and similar services related to coins, bills and currencies considered legal mean of payment” does not apply to Bitcoin transactions, given that Bitcoin shall not be deemed to be legal tender.
However, (we don’t know if this is a mislead or something intended), Mr. Gómez Jiménez has omitted the rest of the exemptions listed in the same article regarding financial services, such as the exemption of the paragraph h), which states the VAT exemption of “Transactions regarding transfers, money orders, checks, promissory notes, bills of exchange, debit or credit cards and other payment orders.”
Furthermore, Mr. Gómez Jiménez states that the obtaining of bitcoins by minning shall be deemed to be a swap. However, we will discuss this issue in a further post.
VAT and Bitcoin in Europe
The German Minister of Finance has answered to a consultation (DOK:2013-0752711) from Frank Schaeffler (Deputy), considering that Bitcoin shall be deemed to be “private money” or, at least, a complementary currency.
The Minister denies the VAT exemption for Bitcoin as coin or foreign currency (under the article 4.8.b of German Vat Act, but he considers that the VAT exemption related to “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, checks and other negotiable instruments, but excluding debt collection” shall be applicable, under the article 135.1.d of the Directive.
United Kingdom: Exempt
The British taxing authorities has stated in the Revenue & Cuestoms Brief 9/14, of 3 March 2014, the following:
- Income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received.
- Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, checks and other negotiable instruments.’
- When Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves.
- Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above.
France: Could be exempt
The French Minister of Finance, Michel Sapin, has stated that, “as for VAT, France will support at the European level a tax exemption, in order to avoid reiterating the unfortunate experience of the massive VAT fraud over CO2 quotas”.
Estonia: Not Exempt
The Estonian taxing authorities has published, on its Website, a report related to the interpretation of Bitcoin taxation, stating that Bitcoins transactions does not fall under the exemptions of the Article 135.1 of the Directive, given that financial services are listed and require some features that Bitcoin does not have. The taxing authorities argued that it should be made a strict interpretation of means of payment, electronic money, securities and financial services. Consequently, they consider that Bitcoin transactions are subject to normal VAT taxation.
Poland: Not Exempt
Polish taxing authorities have stated that the sale of bitcoins shall not be exempted under the Article 135.1 of the Directive. Consequently, Bitcoin transactions, as a service, is subject to normal VAT taxation. The taxing authorities argued that the exemptions for financial services under the Directive should be interpreted strictly and that the referred exemptions are subject to the conditions laid down by the Member States of the European Union, even though it is recognised that bitcoin is, at the same time, a unit of account and a payment system, but:
- “The payment system does not have any issuers or any institutions to supervise.
- The unit of account cannot be considered a currency due to a lack of legal status”.
Sweden: Not sure yet
The Sweden taxing authorities state that in the Article 135.1.e of the Directive, 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” the term currency is not linked to legal tender. The presence of the exception of the “collectors’ items” that certainly were legal tender, but are not normally used as such because they are collectors’ items, is reported only to coins and bank notes. In the opinion of the Sweden authorities, this excludes the concept of “currency” of the need of legal tender, given the following considerations:
- Exchange of Bitcoin requires similar requirements to intermediation of financial services;
- Bitcoin is a mean of payment used in a similar way to legal tender;
- Bitcoin has similar features than electronic money;
Swedish authorities held that Bitcoin transactions shall be deemed to be transactions concerning currency referred to in Article 135.1.e, consistent with the purposes of the exemptions provided for in Article 135.1.
The Swedish Supreme Court also considered that the Court of Justice has not considered how Article 135.1.d, e and f of the Directive must be interpreted with respect to foreign exchange transactions related to virtual currencies. According to the Supreme Administrative Court’s opinion, it is unclear whether any of these exemptions include those exchange transactions
In the end, it seems that Member States of the EU are drawing an homogenous criteria related to the legal status of Bitcoin and the VAT exemption of Bitcoin transactions.
What do you think about it? How would you apply the Directive? Do you think that Bitcoin transactions should be considered as VAT exempted?
 Consultation DGT, V1029-15, from 27 March 2015. Spanish.
 COUNSEL DIRECTIVE 2006/112/EC, from 28 November 2006, related to Value Added Tax
The information and views set out in this post are those of the author and do not necessarily reflect the official opinion of Law & Bitcoin.