Bitcoin mining is exempt from VAT

Bitcoin mining is an economic activity that is exempt from VAT.

This has been stated by the court in The Hague in a recent judgment.

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The court in The Hague on bitcoin mining

This is a lawsuit between a Dutch bitcoin miner and the Dutch tax authorities. The former has started the lawsuit against the tax authorities. In their view, the tax authorities have erroneously sent an additional employment to pay VAT.

The reference relates to the extraction of bitcoin in the period from 1 October 2014 to 30 June 2015.

During that period, the reward was 25 bitcoins per block, or $ 1.7 million (~ 1.47 million euros) per block at the current market price.

During the above period, the mine pool to which the applicant was affiliated diluted 1,258 blocks containing 25 bitcoins.

That equates to 31,450 bitcoins that could be distributed within this mine pool. It is unknown at this time what he will do after leaving the post.

This amount of bitcoin is worth ~ 2.14 billion dollars (~ 1.85 billion euros) at the current market price. It is unknown whether it was offered in its entirety on the market, but it can be assumed that customers have been found for some of these bitcoins.

In any event, the applicant was granted additional employment by the tax authorities because too little VAT had been paid in their eyes. It was an amount of 14,788 euros spread over three quarters.

She made an objection, but that objection disregarded the tax authorities. She then filed a lawsuit.

‘Economic activity exempt from VAT’

As you know, certain industries and sectors are exempt from paying VAT, and this also applies to bitcoin mining, the court in The Hague ruled.

The statement listed in parts:

  • The court concluded that as a miner, you receive two types of rewards: the block reward and the transaction costs. Both are settled in bitcoin, which is included in the protocol.
  • According to the judge, it is crystal clear that the transaction costs received can be considered as compensation for the mining activities performed.
  • That a miner does not always find a block and thus does not get a reward is less relevant when deciding whether something is an economic activity.

    This also applies to other sectors. A buyer of a house eventually chooses a purchasing agent who eventually receives a commission, the other purchasing agents offer their services but receive nothing.

    So: all miners perform economic activities, but when you extract the next block, one is the winner.

  • The judge also states that receiving the block reward cannot be seen separately from receiving the transaction costs. Of course, without finding the block, the transactions cannot be sent (and thus receive a transaction fee).

In short, verifying and validating transactions and delivering computing power to the network to find the next block is one and the same economic activity.

On the basis of the European VAT Directive, the court concludes that mining bitcoin (and other coins?) Can be seen as an economic activity that is exempt from VAT.

The applicant further found that 98% of the bitcoin blocks found were traded to persons outside Europe. However, the court did not completely agree with this explanation, because citizens of Europe can also buy and trade bitcoin with currencies other than the euro.

Nevertheless, the court concluded that an estimated 75% of the miner’s customers are located outside Europe. This judgment allows the miner to deduct the VAT charged from his operating costs.

As a result, the additional employment has been reduced to 3,694 euros, 25% of the original assessment amount from the tax authorities.

Among others Alejandro de la Torre from mine pool Poolin ‘is aware of the case.

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Also transactions VAT free

The European Court of Justice ruled already in 2015 that payment and trading in bitcoin is exempt from VAT.

Sources: / Baker McKenzie

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