EU – Advocate General Opinion – Bitcoin dealing VAT-free as currency exchange?

PwC-NYC-Technology-37_noexp.html

ECJ Advocate General Kokott has recommended the Court to consider dealing in bitcoins for a commission to be a service exempt from VAT under the currency dealing provision (link – to the German version of the opinion. In English it is not yet available) .

A Swedish dealer in bitcoins (buying and selling bitcoins in exchange for Swedish kroner) was in dispute with the tax office over the VAT liability on the currency exchange. He maintained that he was providing a VAT exempt service of currency exchange, whereas the tax office disputed the point because bitcoins are not legal tender. It was also pointed out that bitcoins are not subject to any form of government supervision or control and offer no guarantee of continued usefulness to the holder.

The ECJ Advocate General on the case has nonetheless suggested the court to rule that the exchange be seen as a service within the meaning of the VAT Directive, but exempt from VAT as a currency exchange. Her main point is that bitcoins are a means of payment and fulfil the same function as legal tender insofar as the parties to a given transaction are prepared to accept them in settlement of the debt. She also points out that the condition that the currency dealt in must necessarily be legal tender is not clear from the directive’s text in every language. If bitcoins can be used in payment, insistence that their exchange for another currency be subject to VAT would destroy the neutrality of the system as there would be no reason to treat the two means of payment differently. Arguments based on currency risk are, she feels, irrelevant, as the attribute of legal tender does not remove the risk from a currency. In any case currency risks are a matter for supervision authorities, but not for the VAT system. As she put it, even if a transaction were prohibited, it would still be subject to VAT.

The opinion, if followed by the Court, would recognise bitcoins as legitimate currency, meaning that conversions between it and other currencies would be VAT-exempt.

However, even if followed by the Court, it remains to be seen which legal basis it will use: Article 135(1)(e) as suggested by the Advocate General, or Article 15(1)(d) which is the position of EU Member States such as Belgium or the UK.

The ECJ case reference is C- 264/14 Hedqvist opinion of July 16, 2015.

Note 1: The opinion of the Advocate General to consider the bitcoin dealings as VAT-exempt is more or less in line with the current position of the Belgian VAT administration as outlined in a Parliamentary Questions that is publicly released. According to the Belgian VAT administration, the trading of bitcoins and other virtual currencies is similar to the activity of an intermediary negotiating in securities and other negotiable instruments and, as a consequence, is exempt from VAT under the Belgian VAT code provision implementing Article 135(1)(d) of the EU VAT Directive (and not Article 135(1)(e) as suggested by the Advocate General). As a result, the activities should be treated as exempt from VAT in Belgium and Bitcoin and alike trading platforms should not charge VAT to their customers with respect to their exchange services. On the other hand, those platforms have no right to deduct the Belgian input VAT paid in relation to their exchange activity.

Note 2: The AG opinion is interesting because it provides some preliminary insights at the European level on bitcoin taxation.  Currently in the EU, the VAT treatment of the trading with virtual currencies is not harmonised. One approach taken by countries like Belgium and the UK is to exempt these transaction from VAT. According to the other approach represented by Poland or Estonia, the trading of virtual currencies should be subject to VAT.

Also outside the EU, there is no unified approach. The Swiss Federal Tax Administration ruled in June that bitcoins are VAT-exempt, whereas  Australia’s tax authorities have ruled that bitcoins are not considered as “money” and hence bitcoin transaction are subject to GST. In Iceland, bitcoins and other virtual currency transactions are restricted to “mining” within the country.

Japan – Tax authorities’ guidelines for the new JCT rules as of 1 October 2015 are now available in English

PwC-NYC-Technology-42_noexp.html

Further to our previous posts on this topic (here, here and here) the Japanese National Tax Agency (NTA) published on-line its guide in English on the Japanese Consumption Tax (JCT) obligations on the cross-border supply of electronic services.

You can access the English version of the document intended for foreign businesses here. The NTA also published some further documents here on this topic, however please note that all these documents “are used only for explanations”.

For further information please contact Kotaku Kimu of PwC Japan or me.

South Korea – simplified registration website for B2C e-service providers is expected to be available from 10 July

PwC_R_NYC_Technology_78_Noexp.html

As previously reported here and here the amended South Korean VAT law for the supply of e-services from overseas has been effective since 1 July 2015. Accordingly, overseas service providers shall apply for the simplified business registration by 20 July 2015.

The Korean National Tax Service (“NTS”) recently issued a notification indicating that the website for the application of simplified business registration is still under construction. The website is expected to go-live on 10 July 2015. If a taxpayer would like to apply for the registration earlier than that, it is possible to complete a registration form and submit it via email to the NTS.

For further information please contact Changho Jo of PwC Korea or me.

Japan – Update on practical implications of the new JCT rules effective from 1 October 2015

PwC-NYC-Technology-54_noexp.html

Further to our previous posts on the Japanese Consumption Tax changes (here, here, here and here), at a recent explanatory session by the Japanese National Tax Agency (NTA) on 9 June 2015 the NTA advised that the special indication “the supplier is liable to account for consumption tax” on B2C invoices can be replaced by implying that the sale price is inclusive of consumption tax. E.g. “JPY 108,000 yen (including 8% consumption tax of JPY 8,000)”. In addition the registration number of a Registered Offshore Business Person is still required to be included in the invoice.

However, given the new Consumption Tax Law which still clearly stipulates that input tax credit on a taxable purchase of B2C Telecommunication Online Services on or after 1 October 2015 is only possible if the supplier is a “Registered Offshore Business Person” and the invoice or purchase receipt (which can be prepared electronically) includes the registration number of the supplier and the special indication that the supplier is liable to account for consumption tax. If there is no such indication on the B2C invoice, a business customer should ask for re-issuing the proper invoice pursuant to the new Consumption Tax Law to ensure the deductibility of input consumption tax.

For reference please also see PwC Japan’s newsletter of 12 June 2015 on “New Japanese consumption tax rules on cross-border digital services”.

For further information please contact Kotaku Kimu of PwC Japan or me.

PwC Webcast – BEPS and VAT – 18 June 2015

Photo_RGB_R_DUB_5769-exp.-07-10-2018.html

Since the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) was published in July 2013 with a view to addressing perceived flaws in international tax rules, the work under the Action Plan, backed by the G20 finance ministers, has progressed swifter than expected by many and has resulted in over 10 draft papers being published to date.

So what does BEPS mean for Indirect Taxes?

Whilst only two of the papers published so far contain specific references to Indirect Taxation and VAT, the potential impact of the changes considered in the other BEPS papers will also lead to changes which could indirectly have significant implications for international VAT and customs duties specialists to be aware of going forward. In our webinar, PwC Indirect Tax specialists are going to take a closer look at what the impact of the proposals could be and what to look out for.

Joining instructions:

Date:     June 18, 2015
Time:    16pm CET, 10am Eastern(New York)

Click on the link to open the webcast registration page.  You may log in starting 15 minutes before the webcast begins, but it will be also recorded for later viewing.

After filling out the registration page, the webcast will open in Internet Explorer to enable you to view the presentation on your desktop and hear audio through your computer’s speakers.

EU Commission – revamped Taxation and Customs website

PwC-NYC-Technology-43_noexp.html

The EU Commission recently updated its Taxation and Customs Union website, which now offers a way better overview. At first sight it also seems that you need to spend less time on researching the website for what you are looking for and it provides easier access to information. You can check the VAT section here, including a good repository of all documents relating to the B2C 2015 changes.

Japan – Announcement of definition of B2B / B2C Telecommunication Online Services

Photo_RGB_R_CAN_TR_D1_CM1_6401-exp.05-21-2018-.html

Further to our previous posts on this topic (here, here and here), the Japanese tax authorities recently issued a new Consumption Tax Law Basic Circular (Circular  – in Japanese) as well as further guidance on electronically supplied services to provide further clarity on the Japanese Consumption Tax (JCT) impact of the new rules on an Offshore Business Person. In particular the leaflet further explains what is considered to be “B2C Telecommunication Online Services” (Links in Japanese for the leaflet for business customers and off-shore suppliers and to general Q&A).

Find out more

Israel – Tax Authorities issue Draft Circular regarding activities of foreign companies through the Internet

PwC-NYC-Technology-42_noexp.html

The Israeli Tax Authorities (ITA) issued draft guidelines titled “Activities of Foreign Companies through the Internet” (hereafter the “Draft Circular”) for comments.

The purpose of the Draft Circular is twofold:

  1. To elaborate on when service income is generated by a foreign entity; in cases where the internet serves as a key tool for generating such service income, income would be regarded as generated by a permanent establishment (PE) of such an entity in Israel.
  2. To determine, if, and under what circumstances, a foreign entity, which provides services to Israeli customers through the internet, should register for Israeli VAT purposes.

Find out more