New EU Tax Law Could Double Tax Bitcoin and Log Location Data

A reclassification of how Value Added Tax (VAT) is to be applied in the EU could force merchants to log user’s location, and make the user pay VAT twice. In particular, this could mean that from January 1 merchants could be forced to log identifying details about bitcoin users’ identity in order to apply the tax correctly. This is a new chapter for the Europe-based tax, and comes after both Sweden and Finland have fought with the EU over bitcoin’s status as a taxable object.
The changes to the Europe-wide VAT system have come as an attempt by the European Parliament to curb the practice of firms locating their supplying offices for digital goods in EU VAT-havens such as Luxembourg, which has a historical VAT rate of only 15%.
Companies are now required to record the EU country in which the digital goods and services they supply are to be consumed as the VAT burden now falls on the nation of consumption rather than the registered location of the supplier. A company supplying digital downloads from Luxembourg to Hungary, for example, could increase the tax rate from a current 17% to 27% of the total value.
Announcing the change last year, the EU stated in their explanatory notes the reasons behind this change.
‘The underlying reason for these changes was to bring the VAT treatment of these services in line with one of the main principles of VAT that, as a consumption tax, revenues should accrue to the Member State in which goods or services are consumed.’
The broad classification of these ‘digital services’ means that the supply of bitcoins could be included in such a definition. Article 7.2.a of the explanatory notes defines digital goods so broadly as ‘the supply of digitized products generally, including software and changes to or upgrades of software.’
Without any European wide agreement about what digital currencies actually are for tax purposes, companies aiming to stay on the right side of the law may fairly presume that supplying digital currencies and services related to them constitute this tax liability.

This post was published at Coin Telegraph on 2015-02-12.