European court says bitcoin should not be taxed

Bitcoin and other virtual currencies should not be taxed when they are exchanged, a European court ruled on Thursday.

CNBC reported that the European Court of Justice said that the virtual currencies are not subject to value-added tax (VAT) “under the provision concerning transactions relating to currency, bank notes and coins used as legal tender.” They would otherwise have been treated like a standard commodity.

{mosads}The ruling came in a dispute between a Swedish citizen and the country’s tax authority, who disputed an earlier ruling that he could operate a bitcoin exchange without being taxed. The court’s decision was expected by the industry, according to The Wall Street Journal.

Bitcoin and other virtual currencies, which are generated by computers, have become more prominent in recent years. In the process, services related to the currencies have attracted interest from venture capitalists.

But they’ve also been subject to significant scrutiny from regulators around the world.

The Commodity Futures Trading Commission in the U.S. has ruled that virtual currencies are commodities, like oil or metals, and therefore could be subject to regulation and oversight by the agency.

“While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said the agency’s director of enforcement in a statement last month.

The European ruling is a victory for the virtual currency market in the Europe, which was reportedly concerned that being subject to VAT would put it at a disadvantage against businesses in jurisdictions that do not tax the currencies. The ruling also reduces the cost of trading the currencies, which could increase consumer interest.