The Court issued a judgment analyzing the legal nature of virtual currencies –in this case, bitcoins- and determined that the exchange of traditional currencies for virtual currencies falls under the scope of value added tax, but is exempt from its payment.

On October 22, 2015, the Fifth Chamber of the Court of Justice of the European Union (the “Court”) issued a judgment on a preliminary ruling request from the Högsta förvaltningsdomstol (Swedish Supreme Administrative Court) in the “Skatteverket v. David Hedqvist” case,  to assess the potential applicability of value added tax (“VAT”) to transactions conducted by companies known as “bitcoin exchanges”. For such purpose, the Court analyzed the case from the perspective of the Council Directive 2006/112/EC on the common system of VAT (the “Directive”).

According to the information provided in the main proceedings, the main activity of the defendant’s company was the exchange of traditional (fiat) currency for bidirectional virtual currencies (i.e., convertible or exchangeable with fiat currencies, as opposed to virtual currencies that can only be used in specific virtual domains, also known as “non-convertible” or “closed” virtual currencies), such as bitcoins.

The profit obtained by the defendant’s company consisted of the margin that it would include in the calculation of the exchange rate at which it would be willing to sell and purchase the bidirectional virtual currencies (the “virtual currencies”).

The Court’s judgment

The Court clarified that the activity conducted by the defendant’s company consists of a “supply of services for consideration” that falls under the scope of  VAT, but is exempt from its payment; giving virtual currencies a similar treatment to the one currently given to traditional currencies, based on Article 135(1)(e) of the Directive that provides that member States shall exempt “transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest”.

The Court did not include said exchange activity among other potential exemptions contained in the same regulation such us (i) “deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection” and (ii) “shares, interests in companies or associations, debentures and other securities” (pursuant to Article 135(1)(d) and (f), respectively), the applicability of which has been deemed viable by certain scholars and member States of the European Union.

Moreover, the Court determined that virtual currencies cannot be characterized as “tangible property” under the Directive, and have “no purpose other than to be a means of payment”. It also considered that“unlike a debt, cheques and other negotiable instruments (…), the ‘bitcoin’ virtual currency is a direct means of payment between the operators that accept it”.

The judgment also refers to virtual currencies as “non-traditional currencies”, understood as “currencies other than those that are legal tender in one or more countries”.

According to the Court’s ruling, transactions with virtual currencies are financial transactions as long as“those currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to be a means of payment”.


The debate over the rules that may apply to virtual currencies has become a subject of study to which scholars, foreign and international governmental entities are dedicating much time and attention.

This judgment is particularly important for the member States of the European Union’s legal systems as it is a binding precedent that aims to unify the criteria to be followed by them, most of them have already issued dissimilar interpretations regarding the applicability of VAT to the activity of exchanging virtual currencies for fiat currencies.

In Argentina, as it has been explained in Marval News #143, to date, the only regulation for virtual currencies is Resolution No. 300/2014 of the Financial Information Unit (Unidad de Información Financiera), aimed to prevent money laundering and terrorism financing. Regarding tax regulations, there are no regulatory provisions or precedents that give insight to the Federal Tax Authorities’(Administración Federal de Ingresos Públicos) position regarding virtual currencies. Notwithstanding, it is important to take into consideration the potential impact that this ruling may have in Argentina.

It is reasonable to expect that some of the arguments used by the Court regarding the legal nature of these transactions may be considered by Argentine authorities at the time of assessing the regulations applicable to virtual currencies.