On 2 June 2014, the Supreme Administrative Court of Sweden submitted a request for a preliminary ruling to the Court of Justice of the European Union (“CJEU”) asking the CJEU to rule on whether the exchange of bitcoins for “fiat” currencies and vice versa is to be considered as a supply of service and if so, whether the exchange transactions of bitcoins fall within the scope of the exemptions for financial services.

This referral is a result of a dispute between the Swedish tax authorities and a private defendant David Hedqvist. Specifically, the Swedish Board for Advance Tax Rulings issued a ruling to David Hedqvist. The Board confirmed that the service provided by David Hedqvist (i.e. buying bitcoins from exchanges and selling them to Swedish customers) constitutes a financial service that is exempt from VAT. However, the Swedish tax authorities disagreed with the above position and appealed the case to the Supreme Administrative Court of Sweden which, in its turn, decided to refer it further to the CJEU asking the following questions:

1. Is Article 2.1 in the VAT directive to interpreted as meaning that transactions in the form of what has been designated as exchange of virtual currency to traditional currency and vice versa, against a consideration which the supplier count in when the exchange rates are decided, are to be regarded as a supply of service against consideration?
2. If the answer to the first question is yes, is Article 135.1 to be interpreted as meaning that the above mentioned transactions are exempt from VAT?

With the above in mind, CJEU’s judgment is likely to confirm whether a bitcoin is a currency (exempt from VAT) or a method of payment (subject to VAT) and as a result, to align the VAT treatment of transactions in bitcoins across the Member States of the European Union.

For further information please contact Jesper Öberg phone +46 (0)10 2129553 or jesper.oberg@se.pwc.com