(Mar. 13, 2018) On February 27, 2018, the German Federal Ministry of Finance published guidance on value-added-tax (VAT) treatment of bitcoin and other virtual currencies. It determined that transactions to exchange a traditional currency for bitcoin or other virtual currencies and vice versa constitute the taxable supply of other services for consideration, but fall under the exemption from VAT. It stated that bitcoin or other virtual currencies that are used simply as a means of payment are treated the same as traditional means of payment. Using bitcoin or other virtual currencies for no other purpose than as a means of payment is therefore not taxable. This guidance is in line with the European Court of Justice (ECJ) decision Hedqvist from October 22, 2015. (Bundesministerium der Finanzen (BMF) [Federal Ministry of Finance], BMF-Schreiben. Umsatzsteuerliche Behandlung von Bitcoin und anderen sog. virtuellen Währungen; EuGH-Urteil vom 22. Oktober 2015, C-264/14, Hedqvist [BMF-Letter. VAT Treatment of Bitcoin and Other So-Called Virtual Currencies; ECJ Decision of October, 2015, C-264/14, Hedqvist] (BMF Letter), Feb. 27, 2018, at 1& 2; Case C-264/14, Skatteverket v. David Hedqvist, ECLI:EU:C:2015:718.)
Virtual gaming money, meaning in-game currencies, particularly in online games, is not exempt, because it does not constitute a means of payment within the meaning of VAT law. (BMF letter, supra, at 3.)
The German VAT Application Decree was amended accordingly. (Umsatzsteuer-Anwendungserlass [UStAE] [VAT Application Decree], Oct. 1, 2010, Bundessteuerblatt [BStBl] [Federal Tax Gazette] I at 846, as amended, 4.8.3, para. 3a.)
Follow-Up Questions
- Mining
The Federal Ministry of Finance also addressed several follow-up questions. It held that bitcoin “mining” is a nontaxable transaction. The Ministry of Finance noted that “miners” fulfill a service that is central to maintaining the bitcoin system. They make their processing power available to a mining pool, record transactions in a “block,” and subsequently add it to a “blockchain.” The Ministry of Finance stated that the transaction fee, which miners can receive from other users of the system, is paid on a voluntary basis and is not directly related to the services provided by the miners. It further added that receiving new bitcoin from the bitcoin system cannot be classified as payment for mining services because there is no exchange of services, as that requires an identifiable beneficiary. (Id.)
- Digital Wallets
With regard to digital wallets, the Federal Ministry of Finance determined that if they are offered for a fee, they qualify as other services supplied by electronic means which are taxable and liable to taxation if the place of performance is in Germany. Digital wallets are saved on a computer, tablet, or smartphone and are used to store virtual currencies—for example, a smartphone app which is downloaded from an app store. (Id. at 3; Umsatzsteuergesetz [UStG] [Value Added Tax Act] [VAT Act], Feb. 21, 2005, BUNDESGESETZBLATT [BGBl.] [FEDERAL LAW GAZETTE] I at 386, § 3a ¶5, sentence 2, no. 3, § 3a ¶ 2, § 3a ¶5, sentence 1, as amended.)
- Online Trading Platforms
Finally, the Ministry of Finance stated that operators of trading platforms who offer their websites as online trading platforms to purchase or trade bitcoin or other virtual currencies only enable the IT technical processing, which is not exempt from VAT. However, if the operators of such platforms buy and sell bitcoin and other virtual currencies as intermediaries in their own name, they may be exempt from VAT. (VAT Act, § 4, no. 8, letter b.)