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(CORPORATE TAX): LUXEMBOURG ACCOUNTING TREATMENT OF VIRTUAL CURRENCIES

Tax Treatment of virtual currencies

It has been reported that authorities in Luxembourg has recently issued a circular on the classification of virtual currencies (“VCs”) with respect to certain tax aspects.

Furthermore, it has been reported that such circular clarifies that for local business tax and net worth tax purposes, virtual currency is to be treated as an intangible asset.

Any income from virtual currencies shall be taxed as business profits.

VAT treatment of virtual currencies

Earlier in June, the tax authorities in Luxembourg issued a circular with clarification on the VAT treatment of virtual currencies endorsing the ECJ ruling in the case Skatteverket v David Hedqvist (Case C-264/14) whereby on the 22nd of October, 2015, the ECJ withheld that:

Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article.

Article 135(1)(e) of Directive 2006/112 must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision. Article 135(1)(d) and (f) of Directive 2006/112 must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.

Whilst the above quoted case is also relevant for Malta, it is expected that later this year, the Maltese tax authorities will issue clarifications on the tax and VAT treatment of virtual currencies which should also endorse the conclusions of this case.

FF International supports clients operating the field of virtual currencies and virtual assets.

For more information on the accounting and tax treatment of virtual currencies and virtual assets kindly contact:

Franco Falzon
(Managing Partner)
E: franco@ffinternational.com.mt


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