Sweden urges EU to rule on bitcoin taxation

The government of Sweden has asked the European Union to issue definitive rules on the value-added tax (VAT) treatment for peer-to-peer decentralized virtual currencies, like bitcoin and litecoin. Sweden is seeking confirmation after the United Kingdom modified its position on bitcoin taxation back in March.

Earlier last month, Sweden’s Supreme Administrative Court – Högsta förvaltningsdomstolen – filed a request for a preliminary ruling with the European Court of Justice that inquired as to whether or not exchanges in bitcoin for currency or currency for bitcoin is susceptible to a VAT, or sales tax.

In other words, the ruling would determine if bitcoin is a currency, which means it would be exempt from a VAT, or if it’s a method of payment, which would make it subjected to a VAT. This is an important distinction because if virtual currencies are classified as a form of barter then they could face a 21 percent tax for using bitcoins, dogecoins and peercoins, a common figure in Europe.

Classification of bitcoin and other digital currencies has been a major point of contention in several countries across the EU. For instance, Germany and Estonia categorized bitcoin as a “unit of account,” a move that would allow bitcoin to be exempted from taxes, while Great Britain scrapped any VAT on bitcoin trades.

In January, the Swedish central bank announced that it would treat bitcoin as an asset akin to arts, stamps and antiques, and not a currency. This means Sweden would apply a capital gains tax on any transactions using digital currencies.

“The EU has been slow to give VAT guidance on digital currency trading, which has meant member states have been issuing inconsistent rulings,” said Richard Asquith, VP Global Tax of Avalara, in a statement. “As a result of the UK’s highly favorable and clear tax environment, it has benefited from this confusion by attracting trading from other EU countries and beyond.”

Meanwhile, earlier this month, the European Banking Authority (EBA), a banking watchdog in the bloc, recommended the EU should ignore virtual currencies until a set of clear rules are established. This would create a series of consumer protections, assist financial institutions in understanding government regulations and allow the bitcoin community to operate under a cloud of certainty.

“We will now look into what can be done to possibly introduce regulation in this sector, particularly to address the risks of financial crime that arise from the anonymity that characterises many virtual currencies,” said a spokesperson for EU financial services chief Michel Barnier in an emailed statement issued to Reuters. “It is imperative to move quickly on this issue. The potential for money laundering and terrorist financing is too serious to ignore.”

Europe has been an important factor in the cryptocurrency industry. The region maintains an incredible userbase for bitcoin, but central banks and governments have been rather cautious about moving ahead with the innovative virtual currency market.