The European Court of Justice has ruled that bitcoin and other virtual currency transactions should be exempt from value added tax.
The landmark ruling will provide a boost to bitcoin-based exchange startups in the EU, who feared that the imposition of a VAT charge on transactions would dampen demand for the currency and drive investors to cheaper international markets.
The top court's ruling follows a dispute between a Swedish bitcoin forum operator and the country's tax office, which challenged a court decision to exempt bitcoin from VAT.
In its decision, the Court of Justice said bitcoin transactions should be treated in the same way as fiat currency, "under the provision concerning transactions relating to currency, bank notes and coins used as legal tender".
Member states had previously come to their own decisions on the VAT-status of bitcoin, with Poland levying a 23% VAT charge and the UK making bitcoin trading exempt from VAT in a ruling in March.
Richard Asquith, VP of global tax at tax compliance firm Avalara says the ruling is the first step in securing bitcoin’s future as a genuine alternative to national currencies.
"The next stage will be receiving regulatory compliance approval from national banks," he says. "Today’s ECJ ruling will help lay the path to this. It will also give the wider general public the confidence to adopt digital currencies for their day-to-day use. Retailers and payment platforms will now likely step-up their investment in bitcoin management in anticipation of this.”