Bitcoin is crazy hot these days, but I must admit that I still don’t completely understand the mechanics behind it. Perhaps that is exactly why Bitcoin is so popular. I wrote earlier about Bitcoin here, here and here. My lack of understanding aside, if Bitcoin is indeed the new currently that we are lead to believe it is, then I would expect that for tax purposes the currency is treated as such. Under article 135, 1, e of the EU VAT Directive, trading, selling and brokering / negotiation would all be VAT exempt – as long a Bitcoin is a “legal tender”. But if Bitcoin is not a legal tender, can it then be considered as a credit guarantee as under art. 135, 1, c of the VAT Directive? Apparently things work differently in Canada. The below article suggests that the commission for Bitcoin sales is subject to sales tax. I copied the sales tax-relevant paragraph here for your easy reference. In the meantime, I will dig deeper into Bitcoin mining and seek a better understanding of this trend…
“Again, this is a very tricky situation. We all know that sales tax needs to be charged on sales and remitted back to the government, but what part of the transaction is liable for sales tax? If you are in the business of selling bitcoins, do you charge sales tax on the entire transaction or simply on the commission? I know some that are charging just on the commission while others are charging on the bitcoin itself plus the commission. Arguments can be made for both tax treatments however there seems to be a consensus among many, at this point in time, that charging simply on the commission itself is the most appropriate way to handle this. The argument here is that those buying and selling bitcoins are a broker and are simply facilitating the sale of bitcoins for a commission, as such, only the commission is looked upon as subject to sales tax. Does this mean this is how the government will view it? Not necessarily. So beware.”
Tax: The Messy Side of Digital Currency – Techvibes.com. Hat tip to Peter Devlin.
UPDATE: David Kitchen shares a link that indicates that the UK tax authorities may come around to accepting Bitcoin as a currency.
“The general feeling I got from the meeting was that they don’t think VAT should be levied on the bitcoin value itself,” Robinson added.
via UK Tax Authority HMRC Rethinks Stance on Bitcoin.