Finnish regulators have classified bitcoin as a financial service, thus granting it VAT-exempt status.
The Finnish Central Board of Taxes (CBT) judged bitcoin to be a financial service in ruling 034/2014, which states that bitcoin purchases qualify as “banking services” under the EU Value Added Tax (VAT) Directive.
The ruling was issued after a court classified bitcoin as a payment instrument and sets Finland’s approach to the cryptocurrency apart from most European jurisdictions, which generally treat bitcoin as a commodity.
However, the Scandinavian nation is not completely alone in taking this approach: Belgium’s Federal Public Service Finance (FPS) issued a similar ruling in September.
What does this mean for Finland?
Richard Asquith, vice president of global tax compliance at Alavara, told the International Tax Review that Finland’s ruling could help change the way bitcoin is viewed domestically.
“By making bitcoins a recognized payment instrument, Finland has pushed it towards being regarded as a formal currency," said Asquith.
He warned, however, that the decision, in the absence of EU-wide regulations, could cause more regulatory problems:
"This would not be welcomed by European central banks as it would trigger wider financial regulation issues."
For the time being, European regulators and legislators are not making much headway and it is expected that no clear EU-wide rules on bitcoin VAT will be in place for another two years.
Lack of clear EU framework
While not following the general European Union path on this matter, the Finnish ruling does cite the EU VAT Directive. This seeming contradiction is down to the fact that the EU does not have a joint digital currency framework and therefore existing legislation is open to interpretation by individual nations.
Different European countries have taken a variety of approaches to bitcoin taxation and the application of VAT rules. While some seek to apply VAT to all digital currency sales, others simply ignore them, leaving them unregulated in terms of taxation, or apply capital gains or corporate tax on trading or mining profits.
The EU has been looking into digital currencies for some time, but apart from several consumer warnings and opinions, its response has been slow and there is still no push for legislative uniformity across the region.
Earlier this year, however, the European Banking Authority (EBA) warned financial institutions against getting involved in the digital currency space until the industry is regulated.
Back in March, the European Central Bank (ECB) reiterated its previous position on digital currencies, saying that the new technology should not be ignored or dismissed.
Finnish flag image via Shutterstock