Today, General Advocate Juliane Kokott stated in her Opinion to the ECJ regarding the Hedqvist v Skatteverket case that Bitcoin and digital currencies should not be subject to VAT.
The provision of an exchange service between legal tender and another method of payment constitutes a service under Art. 2 (1)(c) of VAT directive.
However this service is exempt from VAT under Art. 135(1)(e) that states:
“transactions, including negotiation, concerning currency, bank notes and coins used as legal tender”
The Advocate’s reason for the VAT exemption is slightly different to those the UK and Spain (who also consider it exempt). However, the UK and Spain consider digital currency exchange transactions to be a form of negotiation of payment instruments under 135(1)(d). The EU Commission’s position was that the digital currency exchange transaction should be exempt also.
The Advocate decision is persuasive for the Court of Justice of the European Union. At the moment, it would seem that Europe may end up with a full VAT exemption for digital currency transactions; placing it at the center of the world for Bitcoin trading.