European Gaming Lawyer magazine Spring 2016 | Page 17

tax-free sales restrict the right to deduct
input VAT (on a pro rata basis), unless these
sales are carried out to a recipient resident in
a third state (art. 169 lit. c) VAT Directive).
If the restriction of the input VAT deduction
of such tax-free EU sales is disadvantageous
compared to the tax exemption of the sales,
entrepreneurs might opt for taxation in
respect to these sales to other entrepreneurs.
Germany e.g. has made use of the EU
Member States’ option granted by art. 137
para. 1 lit. a) VAT Directive which allows
taxable persons a right of option for taxation
in respect to these transactions.
Occasional traders will most likely be
exempt from tax in any case, because
the special scheme for small enterprises
might apply (art. 281-292 VAT Directive).
However, it should be noted that the above
tax-free sales are relevant for calculating the
sales threshold up to which small enterprises
may benefit from the special scheme (for
example, in Germany: € 17,500.– in the
preceding year, € 50,000.– in the present
year), unless the bitcoin sales are ancillary
transactions. As a consequence, start-ups in
the gaming sector will have to check their
tax planning if they intend to open their
business to bitcoins.
Cross-border VAT on bitcoins
In cross-border cases, the above described
bitcoin sales to other entrepreneurs result
in B2B-services which are taxable in the
recipient’s state (art. 44 VAT Directive).
Given the tax exemption of such sales,
however, the reverse charge mechanism
cannot apply (art. 196 VAT Directive).
Accordingly, the supplier of the service
would generally have to declare tax-free

sales in the other EU member state. The VAT
treatment of bitcoin sales to entrepreneurs in
third states would depend on the third state’s
qualification of those sales and whether or
not the tax exemption or the reverse charge
mechanism applies.
Bitcoin sales to EU customers generally
constitute B2C-services being taxable in
the supplier’s state (art. 45 VAT Directive).
Yet, the qualification of bitcoin sales as
electronically supplied services seemingly
is very plausible and would imply that
the place of supply is shifted to the state
of residence of the customer (art. 58 VAT
Directive). Again, the entrepreneur would
face additional declaration and compliance
obligations in other EU member states
(and possibly in third states). It remains
questionable whether the MOSS procedure
for electronic sales – which helps to avoid
the registration and compliance burden in
other EU member states – applies to bitcoin
sales. For the time being, it does not seem
possible to declare tax-free sales via the
MOSS procedure, as the forms only provide
boxes for sales at the general VAT rate or the
reduced VAT rate.
Conclusions
The fact that the highest court in the EU
has referred to bitcoins as an “alternative to
legal tender” and applied the tax exemption
for traditional means of payment arguably
is a huge boost for bitcoin lobbyists in the
discussions with financial market authorities.
Further, the CJEU judgement has helped to
solve practical problems for the exchange
of bitcoins into currencies. Applying the
tax exemption for means of payment helps
to avoid an extra VAT burden on such

transactions and enhances the transferability
of bitcoins. The direct payment via bitcoin
should not constitute a taxable event either.
As a consequence, the main obstacles
for using bitcoins as a means of payment
in online gambling, and the subsequent
exchange of the bitcoins into real money by
the igaming operator have been removed.
The Hedqvist judgment can be seen as the
go-ahead for the European igaming sector
opening up to bitcoin transactions.
Still, a lot of pr X