In the European Union (EU), the VAT treatment of key exchange transactions was established in 2014. EU tax authorities issued guidance in response to a case taken to the European Court of Justice concerning the VAT liability of exchange transactions.

However, there continue to be variations between all jurisdictions on the level and breadth of guidance issued by tax authorities across the jurisdictions surveyed. In many cases, the available guidance has not kept pace with industry development and does not consider newer token types, such as security or utility tokes, or complex transactions.

The lack of comprehensive guidance, together with increased complexity and diversity in the digital assets supply chain, makes it difficult for suppliers, purchasers, intermediaries and other trading infrastructure service providers to determine the VAT liability of their services – particularly where these are supplied cross-border.

Complications also arise between the contrasting direct and indirect treatment of cryptocurrency exchange transactions. For example, within indirect tax, the trading/exchange of cryptocurrency for fiat or another cryptocurrency is often seen as akin to a transaction in money or securities. In many jurisdictions this leads to the application of the financial services VAT exemption, meaning that the exchange does not need to charge VAT to its customer. But this also means that it is not possible to reclaim input VAT.

However, for crypto-to-crypto trades involving utility tokens (especially relevant given that many utility token trading pairs offered on exchanges are with Bitcoin or Ethereum), the position is much less certain and there is little guidance on how the VAT rules in most jurisdictions should be applied.

Find more information and topics in the PwC Annual Global Crypto Tax Report 2020.

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