The ECJ’s First Bitcoin Decision: Right Outcome, Wrong Reasons?

On 22 October 2015, the Court of Justice of the European Union issued its first ever ruling on the digital currency known as Bitcoin. For those who haven’t been following this space, Bitcoin was the first and so far remains the most commercially successful of the recent wave of ‘cryptocurrencies’ – a term now defined by the Oxford Dictionary as ‘a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank’.

Most people have heard about Bitcoin mainly in connection with illicit activities. Last year, for example, a group of Swiss artists made the news when their robot ‘Random Darknet Shopper’ – whom they had supplied with a weekly budget of $100 worth of Bitcoins – managed to purchase ‘a Hungarian passport, Ecstasy pills, fake Diesel jeans, a Sprite can with a hole cut out in order to stash cash, Nike trainers, a baseball cap with a hidden camera, cigarettes and the “Lord of the Rings” e-book collection’, all before being arrested in a sting operation by the St. Gallen police. Less entertaining reports of cryptocurrency uses (like drug trafficking, money laundering, and terrorist financing) unfortunately also abound.

The EJC case

It may therefore come as a surprise that the CJEU’s first foray into this veritable digital revolution involved something as mundane as the European VAT directive. Yet such was the case. A Swedish national, Mr. Hedqvist, sought to open up a company in Sweden enabling customers to exchange traditional currencies for Bitcoins and vice versa. The company planned to make its money in the usual manner of currency exchanges: on the margin between bid and ask prices. Mr. Hedqvist had obtained a preliminary opinion from the Swedish Revenue Law Commission stating that the services he intended to provide would be exempt from VAT under Article 135 of the European VAT Directive ...

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