The Court of Justice of the European Union [official website] ruled [judgment] Thursday that converting cash into Bitcoin [corporate website], a virtual currency that is used online and over the Internet, should be exempt from value added tax (VAT) [Swedish government backgrounder] within the 28-country bloc. The court found that the conversion should not be charged a sales tax because the transaction involves “the exchange of different means of payment” and does not fall under the VAT directive. Simon Dixon, CEO of Bnktothefuture.com expressed [Bloomberg report] his approval of the decision saying Bitcoin will now be treated as another form of currency.
The creation and use of digital currencies has been a contentious issue across the globe. The virtual currencies, which exist only in electronic format, are generated and stored via computer and traded among holders for goods and services. In 2014 Tokyo-based digital currency exchange Mt. Gox [corporate website, in Japanese] collapsed after announcing the loss of more than USD $500 million worth of bitcoins to hackers. The loss marked the impetus [WSJ report] for federal investigators to closely examine digital currencies, which remain largely unregulated by US and international banking and currency laws. The popularity of digital currencies stems from the fact that they can be transferred anonymously, unlike most hard currencies created by governments. Former US Attorney General Eric Holder expressed concern [JURIST report] in April 2014 before the US House of Representatives Judiciary Committee with respect to the proliferation of virtual currencies [CNBC backgrounder], which, he asserts, have created new avenues for money laundering, drug trafficking and other illegal activity.