EU bitcoin dilemma as Finland in breakaway VAT ruling

Sat 15th Nov 2014

A new ruling from Finland exempting digital currency market services exempt from Value Added Tax (VAT) puts it at odds with the most of the European Union, including the UK. It potentially changes the classification of virtual currencies such as bitcoin. The European Union is currently reviewing the status of bitcoins.

Finland exempts trading services from VAT

The Finnish ruling by its Central Board of Taxes considered the commission fees charged by a cryptocurrency exchange market. The Board classified bitcoin-related services as a Financial Service. Under the EU VAT Directive, this makes it a banking service and therefore not subject to VAT.

At odds with other EU countries

Of the countries that have issued guidance on the tax treatment of Bitcoins, most have treated the currency as a unregulated method for the exchange of goods. This includes the UK which gave bitcoins the same treatment as gold sovereigns in March this year. This means mining (the creation of bitcoins) or selling digital currencies is exempt from VAT. Gains on trading are subject to Capital Gains Tax or Corporation Tax for individuals or companies, respectively. Some countries, such as Sweden and Poland have made all sales of virtual currencies subject to full VAT, which adds over 20% costs to each trade.

China and Russia still treat the trading of bitcoins as illegal.

EU considering position legal tender issue

In June, Sweden referred the question of the status of digital currencies to the European Court of Justice, the highest court of appeal for EU legal matters.

By making bitcoins a recognized payment instrument, Finland has moved it towards being treated as a formal currency. This would not be welcome by European Central Banks as it would trigger wider financial regulation issues.

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