VAT and Bitcoin: The Ministry of Economic Affairs takes a position

As a representative of the Federal Government, the Ministry of Economic Affairs has filed a petition concerning a case pending before the European Court of Justice. Therein the Federal Government refers regarding a future turnover taxation of Bitcoin purchase and sales for the first time a clear position. The Federal association Bitcoin e.V. received from David Hedqvist insight into the documents. We publish the submission and allow ourselves a comment.

Background of the Bitcoin revolution

Swedish Bitcoin entrepreneur David Helqvist intended to buy and sell Bitcoins commercially. In order to clarify whether he would have to charge VAT on the fee he charged to his users in addition to the purchase price of the Bitcoin revolution, he made a binding request to the local tax authorities. In the course of the proceedings, the Swedish judges responsible for the question asked the European Court of Justice for a fundamental answer on this controversial and new issue. In addition to the question of the VAT status of the fee imposed on Mr Helqvist, they raised the question of the treatment of the Bitcoin revolution purchase and sale of Bitcoins as such.

At the European level, it has by no means yet been clarified whether Bitcoins may go from hand to hand like normal money without paying turnover tax. Should it come to the application of the value added tax on the purchase and sales of Bitcoins, the consequences for Bitcoin users in Europe would be serious. A trader who allows himself to be paid in Bitcoins first pays VAT on his service or product to the tax office. As soon as he then sells the Bitcoins or buys new goods with them, he would again be liable to VAT. Paying with Bitcoins would almost double the value added tax. Bitcoin as a means of payment would therefore be very difficult or even impossible to use in a regular business operation in Europe.

Contents of the Bitcoin loophole

In its reply, the Federal Government rejects all attempts to apply the existing laws analogously to turnover with Bitcoin. It does not consider the exceptions for securities, bonds or money applicable. The submission gives the impression that the responsible employees of the Ministry of Economic Affairs have worked with a focus on legal Bitcoin loophole details and underestimate the political significance of such a regulation.

Bitcoin no money
First, they exclude the comparability of Bitcoin with money. Point 31 is particularly interesting:

In the case of legal tender, the state uses its sovereign task to determine and organise the currency of the state within the monetary constitution and to prescribe it as a means of payment.

Money in the sense of the Ministry of Economic Affairs is only what the state declares as such in its sovereign task.

Bitcoin no claim
The Ministry of Economic Affairs also excludes the definition of Bitcoin as a requirement. According to the exact wording of the law, this is perfectly understandable. However, Bitcoins are de facto treated as a claim, albeit not against a third party, but against a decentralised network. The “ownership” of Bitcoins is nothing other than the demand against the network to be allowed to send a certain number of Bitcoins within the network to any address at any time. No special creativity is required to recognise the similarity of Bitcoin to the financial instruments listed under letter d..

Bitcoin not a security
The Federal Government rejects an exemption from value added tax in accordance with letter f. This is what point 53 states:

On the contrary, Bitcoins are a virtual exchange unit which enables a person to purchase goods or services offered in Bitcoin. …] Bitcoins are therefore not primarily directed towards a payment in cash, but towards a contribution in kind.

The definition of an alleged “intended use” of Bitcoin is a creative construct of the Federal Government. Bitcoin was invented and defined without any purpose and can be used by any user as he sees fit. Whether they are buying goods or services, speculating or simply saving money, all these uses are at least equally possible with Bitcoin. Bitcoin is used de facto just like money.