The challenge facing the law is to adapt to constantly changing social circumstances. This also applies to VAT, for which adapting to the many digital developments poses a major challenge.
A few years ago, digital currency emerged, the best-known example being Bitcoin. A Swedish entrepreneur, Hedqvist, wanted to set up a business exchanging bitcoins for conventional currencies (dollars, euros, etc.) and vice versa, and asked the Swedish tax authorities whether these transactions were subject to VAT. On 22 October 2015, the European Court of Justice ruled that these transactions are subject to a VAT exemption.
That exemption relates to: “transactions involving foreign exchange, banknotes and coins that are legal tender“. Bitcoins are neither banknotes nor coins, nor do they qualify as legal tender. The Court examines the purpose of the exemption and concludes that the exemption must apply to services consisting of the exchange of (virtual) currency in return for payment of an amount corresponding to the margin arising from the difference between the purchase and sale prices.