The European Court of Justice just ruled that Bitcoin and other cryptocurrencies can be exchanged without any added tax just like regular cash. It is a major win for its users and resolves the issue between Sweden's tax authority and Daniel Hedqvist, operator of Swedish Bitcoin forum and exchange, Fortune reported.
When Hedqvist applied for a license to operate his online bitcoin exchange, the Swedish Revenue Law Commission initially said that it would be exempt from VAT. The Swedish Tax Authority intervened, however, and appealed against the decision.
Cryptocurrencies are tripartite products. This means that they are a currency, commodity, and technology all rolled into one. In September, the U.S. Commodity Futures Trading Commission (CFTC) said that it would classify bitcoin as a commodity. This puts it side by side with oil and gold.
The Next Web noted that value-added tax, something quite common in Europe, was deemed inappropriate for its exchange. Furthermore, taxing an exchange of currency "would deprive it of part of its effects," judges said.
They added that "transactions to exchange traditional currencies for units of the bitcoin virtual currency (and vice versa) constitute the supply of services since they consist of the exchange of different means of payment."
Bitcoin, as a virtual currency, is used to pay for goods and services. There is no central bank that governs it. Instead, it uses computers and a process called "mining" to create the currency. The ruling makes transactions within the EU much cheaper to conduct and is a boon to the young industry.
Jonathan Rogers, partner for financial services at international law firm Taylor Wessing, told CNBC via email that "(the ruling) is a shot in the arm - bringing growth and consolidation." The good news also increased the price of bitcoin by about 3%. It closed at $8 during Thursday's session.
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