Spain has joined what may be a growing list of Eurozone countries exempting purchase of bitcoin from Value Added Tax (VAT).
The common rationale for the exemption is that consumers are buying payment or financial instruments. Spain’s General Directorate of Taxes classified virtual currencies as “other negotiable instruments”. A 2006 Directive states that member countries shall exempt the following transactions for VAT:
“transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, checks and other negotiable instruments, but excluding debt collection”
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The ruling explained that virtual currencies work as a means of payment and for tax purposes, functioning similar to money.
Although the Directive originates at the European Union (EU) level, member countries have room to interpret and implement such directives as they see fit. Therefore, not every EU nation has taken the same route. Spain joins Germany, Finland, Belgium, UK, and possibly France with its exemption, but Estonia and Poland have ruled that virtual currency sales are not exempt. Most other Eurozone members remain undecided.
Spain’s decision was helped by the precedent set in a case in the Netherlands. A company, Granton Advertising, engaged in the sale of gift cards that granted discounts to their users. In essence, it can be viewed that they were selling ‘monetary value’. It was ruled that the company was obligated to submit VAT payment, as the cards did not fall under the aforementioned exemption of “other negotiable instruments”. Appeals by the company were unsuccessful.
Spain’s tax authority observed that in Granton’s case, the exemption of “other negotiable instruments” was closely linked with “payment instruments”, thereby indicating bitcoin as eligible.