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Bitcoin, virtual currency exchange is tax-free, EU court says

[BRUSSELS] Bitcoin and other virtual currencies can be exchanged tax free, the European Union's (EU's) top court said in a ruling that puts them on a more equal footing with traditional cash.

Value-added tax, a type of sales levy, needn't be applied because the business involves "the exchange of different means of payment", the EU Court of Justice in Luxembourg ruled on Thursday. The case was triggered by a dispute in Sweden, where David Hedqvist set up a service for the exchange of mainstream money for bitcoin and vice versa.

Bitcoin currency, introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto, has no central issuing authority and uses a public ledger to verify encrypted transactions. It has gained traction with merchants selling legitimate products but also has been used to facilitate illegal transactions because money can be transferred anonymously.

"Transactions to exchange traditional currencies for units of the bitcoin virtual currency (and vice versa) constitute the supply of services" under the bloc's law "since they consist of the exchange of different means of payment", the court ruled. As such they are exempt from value-added taxes, it said.

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To exclude such transactions from the tax exemptions given to traditional exchanges "would deprive it of part of its effects", given that the exemption's aim is to counter "the difficulties connected with determining the taxable amount and the amount of VAT deductible" in cases of taxation of financial transactions, the court said.