Legal Tests on Bitcoin’s Tax-Free Transactions

by on August 2, 2014 2:47 pm BST

Tax-free trading of bitcoin faces a legal test at the European Union’s top court after Swedish authorities sought to extend existing levies to virtual currencies.

The EU Court of Justice must decide whether transactions between virtual and traditional currencies can be classed as a service under EU value-added tax rules, and if so, whether such trades are tax-exempt, according to a court filing.

The case may help clarify powers of tax authorities over bitcoins as central bankers who regulate supplies of traditional currencies from the euro to the pound grapple with their emergence as an alternative means of payment.

Banks shouldn’t buy, hold or sell virtual currencies until regulators develop safeguards to protect their integrity, the European Banking Authority said earlier this month, citing risks including identity theft and the possibility that hackers could target a trading platform.

The Luxembourg-based tribunal is examining a dispute between Sweden’s tax agency and David Hedqvist, who wanted to start selling bitcoins on his website.