RULING: The exchange of bitcoins for ordinary currency is a service exempt from VAT. This does not mean the full legalisation of such money. But its rate of exchange has increased.

On Thursday the European Court of Justice issued a ruling in the case of David Hedqvist of Sweden, who intends to run a virtual money exchange office, exchanging money into Swedish kronas and other currencies. The dispute is over whether such activity can be regarded as the operations of an ordinary money exchange office, i.e. as a financial service. The Court was clear in its mind and held that such currency exchange is a service within the meaning of the directive on VAT. The Court also stated that this was subject to exemption from that tax, just as in the case of other financial services. Tax legalisation. In this manner the Court treated bitcoins the same way as other currencies. Also, although this does not yet mean that bitcoins are legal tender, it could nevertheless increase the desire to use that currency. “The ruling has cleared up doubts arising in many European countries as to the tax treatment given to trading in virtual money”, says Marcin Sidelnik, tax consultant at PwC. In his opinion the lesser uncertainty concerning tax office behaviour regarding bitcoins will increase the popularity of their use in various settlements.

In Poland there is a fair amount of tax uncertainty over bitcoins. The tax authorities regard the virtual currency in a varying manner. Some tax law interpretations have treated bitcoin trading as an “electronic service” subject to 23 per cent VAT (as has the Tax Chamber in Łódź in its interpretation of 7 April 2014, case file no. IPTPP2/44352/ 146/IR). Similar statements were made by the Swedish authorities in the case decided in Thursday’s ruling, but they will have to change their approach. “This obvious step towards legalising bitcoins should incline the Minister of Finance to issue tax interpretations in line with the ruling”, suggested Marcin Sidelnik. He also points out that the explanations will come in handy not only with VAT, but also with income taxes. Acquiring bitcoins online, as well as income from selling them and from the sale of goods and services settled in that currency, may be regarded as taxable revenue. That at least is what the Tax Chamber in Warsaw has been suggesting up to now in the interpretation of 15 April 2015 (IPPB1/451194/152/ EC). The Chamber also suggested that bitcoins should be converted into zlotys to calculate the tax basis. And although the National Bank of Poland does not announce official rates of exchange of that currency, it was pointed out in the interpretation that the market rate of exchange must apply. This is to be the rate from the currency exchange on which a taxpayer has an account in the virtual currency.

Exchange rate increases following the ruling. The Ministry of Finance has so far rarely spoken out on bitcoins. In a communiqué, it stated that it was conducting “regular operations to monitor and analyse the potential risk of committing money-laundering crimes or financing terrorism by using cryptocurrencies, in order to detect possible dangers”. Bitcoins are used to purchase narcotics, weapons and forged documents. However, they are gaining in popularity as a currency for totally legal transactions, and various exchanges record their rate of exchange on a daily basis. On Thursday morning at the BitBay exchange, the bitcoin was about PLN 1,000, but after the ruling was announced it increased to about PLN 1,035-1,040.

Marta Ignasiak, tax consultant at FKA Furtek Komosa Aleksandrowicz:

“Although the Court’s ruling is unambiguous, it could cause some confusion in the Polish practice. Bitcoins are not legal tender in Poland, and the tax authorities have not as yet settled the question of whether its sale is an activity which could be the subject of a legally effective agreement.

Up to now the tax authorities have interpreted such trading in various ways, usually treating it as an electronic service subject to 23 per cent VAT. Taxpayers receiving such interpretations can obviously comply with them, although there is also nothing preventing such trade from being exempted from VAT. The Minister of Finance should issue a general interpretation concerning the manner in which the ruling is to be applied. In it, it should include guidelines on the manner of making corrections of invoices and VAT returns both in the future and retrospectively.