Value Added Tax Considerations
Businesses should consider the Value Added Tax (VAT) implications of their activities when partaking in transactions that involve virtual currencies. This notice is designed to highlight information that businesses should be aware of when providing services relating to the exchange of virtual currencies, and when the purchase of goods and services involves the use of virtual currencies.
1. Information relating to VAT when providing for the exchange of fiat currencies for units of virtual currencies (e.g. bitcoin)
Virtual currency exchanges are entities that allow customers to buy and sell virtual currencies in exchange for conventional fiat money (i.e. state-backed currencies), or other types of virtual currency. These exchanges usually charge a fee on the value of the transaction, or derive income from the difference between the bid/ask spread.
In October 2015, The Court of Justice of the European Union (CJEU) issued a judgement on whether transactions that exchange fiat currencies for the ‘bitcoin’ virtual currency, or vice versa, were subject to value added tax. This judgement was made following a preliminary decision given by the Swedish Revenue Law Commission (Skatterättsnämnden) based on a request made in proceedings between the Swedish tax authority (Skatteverket) and a Mr David Hedqvist, who wished to perform such exchanges through a company.
The CJEU’s judgement stated that: “article 135(1)(e) of the VAT Directive must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision.” 
The full text of the judgement by the CJEU can be found here.
2. Information relating to VAT when purchasing goods and services with virtual currencies
As an alternative to paying with traditional fiat currencies, certain businesses and online retailers may provide customers with the option to pay for their goods and services using virtual currencies. Businesses that chose to accept payment in this manner should take into consideration how VAT should be applied.
In December 2014, a parliamentary question was raised in relation to the tax treatment of virtual currencies. Referring specifically to value added tax, the Minister for Finance, Deputy Michael Noonan, responded by stating that VAT should be treated in the normal way, and that businesses should take into consideration the Euro equivalent of the transaction when calculating the VAT payable: “VAT is generally chargeable on the total consideration for goods and services, including all taxes, commissions, costs, and charges (excluding the VAT chargeable in respect of that supply). This general rule is based on the EU VAT Directive. Where the consideration does not consist of, or does not consist wholly of, an amount of money, VAT is chargeable by reference to what might reasonably be expected to be the open-market (arm’s length) price of the goods or services supplied. The VAT Regulations require that the amount of tax included on an invoice be expressed in Euro. The exchange rate to be used for non-Euro currency transactions is either the latest selling rate for the foreign currency recorded by the European Central Bank or an alternative method of determining the exchange rate that is agreed with Revenue.”
The full response to the parliamentary question can be found below:
• Parliamentary Question No. 171 [45769/14]
For further information relating to the VAT treatment of virtual currencies please contact the Office of the Revenue Commissioners by clicking here.
 NOTE: A reference for a preliminary ruling allows the courts and tribunals of the Member States, in disputes which have been brought before them, to refer questions to the Court of Justice about the interpretation of European Union law or the validity of a European Union act. The Court of Justice does not decide the dispute itself. It is for the national court or tribunal to dispose of the case in accordance with the Court’s decision, which is similarly binding on other national courts or tribunals before which a similar issue is raised.
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