Case Hedqvist (C-264/14) – role of the virtual money in VAT Justice Mikko Pikkujämsä IATJ, Madrid 1 October, 2016 2018/5/15

Background of the case Mr. Hedqvist wished to provide, through a company, exchange services of a traditional currency for the ‘bitcoin’ virtual currency and vice versa Questions to the ECJ by Swedish Supreme Adm. Court: Does the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, constitute the supply of a service? If so, must Article 135(1) of the VAT Directive be interpreted as meaning that the abovementioned exchange transactions are tax exempt? 2018/5/15

First question – supply of service for consideration? Court answered, by straight-forward reasoning: yes Advocate General also reminded that the transfer of a legal tender (or other pure mean of payment) as such does not constitute a chargeable event for VAT purposes, but the taxable service comprises the exchange activity only Cf. ”Voucher Directive” (2016/1065): transfer of a multi-purpose voucher (”MPV”) itself is deemed to be out of scope of VAT but any (other) supply of services that can be identified, such as distribution or promotion services, shall be subject to VAT The supply of goods or services in return for MPV takes place only when MPV is accepted as consideration for them 2018/5/15

Second question – exchange transaction VAT exempt? According to Art. 135(1)(e) exemption for ”transactions.. concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items..” There are linquistic differences in the various language versions of the VAT Directive; for instance in the Finnish version the expression ”used as legal tender” refers only to ”bank notes and coins” but not to ”currency” ECJ: expression must be interpreted in the light of the context and of the aims and scheme of the VAT Directive The exemption is intended to alleviate the difficulties of determining the taxable amount and VAT deduction with financial transactions. Transactions involving non- traditional currencies are also financial transactions

Follow-up questions Is there, from point of view of VAT, difference between virtual money and multi-purpose vouchers? According to new ”Voucher Directive” (to be applied starting from 1 January, 2019), distribution services for MPVs are subject to VAT, but could they – or some of them – be anyway tax exempt as financial transactions? What are the other tax consequences of the use of virtual assets? SAC (Finland) 2016:62: A company developed games for mobile devices. A player was able to buy game money for such games through App Stores. The player was then able to purchase various goods in a game with the game money. Taxable income from the sales by the company was deemed not to be accrued when the player bought the game money but only when the player purchased goods in a game with the game money.