The decision “is the first step in securing bitcoin’s future as a genuine alternative to national currencies”, Richard Asquith, a vice-president at tax compliance firm Avalara, said. “ As long as the VAT treatment of bitcoin remained uncertain, intense competition from global exchanges such as Switzerland, Singapore and Hong Kong, threatened to take market share.”

 

Indirectly, it stands to boost the UK’s efforts to make the City of London a hub of bitcoin trading, as traders worried that a potential tax increase of more than 20 per cent may have severely damaged liquidity in the fledgling market. The European Court of Justice decision also endorsed the position taken by UK tax authorities last year that bitcoin trading should generally be VAT-exempt.

 

The ruling nudges the EU on to a different tack to the US, where the Commodity Futures Trading Commission last month deemed bitcoin and other virtual currencies to be commodities, simultaneously shutting down trading platform Coinflip for not following rules that apply to the sector.

 

Earlier this week Mario Draghi, president of the European Central Bank, said virtual currency schemes like bitcoin were “something else, different from known currencies”. In a letter to MEP Eva Kaili, he said their usage was low and not expected to pose a threat to the euro area payment system.

 

“They could possibly become a concern to the ECB if their issued volume, links to the real economy, traded volume and user acceptance were to become material within the euro area so that such a currency would affect the euro itself,” he wrote.

 

The ECJ ruling challenges the stance taken by some EU nations, such as Germany, Sweden and Finland, to regulate and tax the digital token as a commodity.

 

Full article in Financial Times (subscription required)