Bitcoin is exempt from tax and should be treated in the same way as traditional currency, a European court has ruled.
The European Court of Justice (ECJ) said on Thursday that digital currency is to be kept exempt from value added tax (VAT), often applied to goods and services. Instead, as reported by The Financial Times, exchanges involving cryptocurrency such as Bitcoin should be treated as forms of payment akin to banknotes and coins.
This protects Bitcoin exchanges from having to provide for VAT, currently set at 20 percent in the United Kingdom.
In a statement, the ECJ said:
"[Bitcoin transactions] are exempt from VAT (value-added tax) under the provision concerning transactions relating to currency, bank notes and coins used as legal tender."
The ruling follows a dispute caused between the Swedish Tax Authority (STA) and Swedish Revenue Law Commission (SRLC) over Bitcoin. After Swedish national David Hedqvist asked for tax clarity before setting up an online Bitcoin exchange, the SRLC originally told him Bitcoin was exempt, however the STA didn't agree -- arguing that virtual currency should not be covered by a European Union directive which exempts currency-based exchanges from VAT.
The ruling is a boost for Bitcoin as the virtual currency, dogged with market fluctuations following exchange post closures and cyberattacks, tries to stabilize and present itself as a viable alternative to traditional currency.
Last month, US regulators declared Bitcoin to be a commodity, closing down Coinflip for allegedly failing to operate under US commodity guidelines.
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