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  • Bitcoin mining VAT treatment

    Posted by Alida on 17 October 2021 at 1:27 pm

    Interesting case on whether Bitcoin mining is considered an economic activity for VAT purposes.


    Vof X was engaged in the verification and authentication of transactions in the crypto-currency bitcoin and the creation of so-called blocks within the bitcoin blockchain (mining activities).

    The blockchain was a digital ledger in which all transactions in bitcoins were recorded. By creating blocks, space was created for (new) transaction data. With regard to the activities of X, two fees could be distinguished:

    • a fee in bitcoins for the verification and authentication of transactions (the transaction fee). Verification and authentication were not always subject to a fee, and
    • the fee for creating a new block in the blockchain, consisting of the amount of bitcoins that this created (the blockreward).

    In general, several people tried to realise a certain block at the same time. The payments for all these activities were allocated on a winner-takes-all basis: the first person to realise a block received all the transaction fees for the block as well as the full blockreward; the others received nothing. The payout took place in one amount in bitcoins without further specification.

    For the execution of the mining activities, X was a member of a cooperation (the pool). When a participant in the pool realised a block and thus received a fee, this fee was divided among all participants in the pool. X was refunded the VAT for the fourth quarter of 2014 and the first two quarters of 2015 that had been charged on the purchase of computer and cooling equipment and on the electricity needed to operate this equipment.

    The inspector then stated that this was not an economic activity. He imposed an additional assessment for the input tax and also for the amounts that had been transferred to X from other EU Member States. X lodged an appeal.

    The District Court of The Hague asked the Supreme Court for a preliminary ruling on the deduction of VAT for bitcoin mining activities. The Court wanted to know from the Supreme Court whether statistical data could be relied upon to provide evidence of the right to deduct VAT in the context of bitcoin mining. However, the Supreme Court decided under Section 27gc(8) AWR not to answer the preliminary questions.

    The Court of The Hague subsequently addressed the question of whether X had performed economic services for which there was a specifically identifiable fee. The Court agreed with X and the Inspector that the transaction fees were remunerations for the performances which X performed for the specific providers of the transaction and that to that extent there were economic performances which fell under Article 11(1)(j) of the Turnover Tax Act.

    After all, the transaction fee was a fee charged to the party offering the transaction for verification and was payable when the transaction was included in the block. As X started working on the offered transaction, there was a direct link between her activities to process a transaction and the counter value she received, consisting of the transaction fee.

    The fact that X did not in all cases eventually receive that transaction fee because someone else realised the block and it was not clear who the person offering the transaction was, did not affect this connection. In this context, the Court relied on the judgment of the EU Court of Justice in Town & County Factors Ltd, from which it could be deduced that a legal relationship had to be interpreted broadly.

    The Court also disagreed with the Inspector that a distinction should be made between activities for the purpose of validating and authenticating and activities for the purpose of mining, and that mining was a non-economic activity. It had not become plausible that such a distinction could be made. After all, the validating and authenticating was in itself also aimed at the realisation of the block and therefore at mining. Validating, authenticating and mining were therefore inextricably linked.

    Furthermore, X intended to trade the bitcoins to be mined, which also had to be regarded as a service and therefore as an economic activity. The Court subsequently decided that X had not made it plausible that 98% of the customers for its services were located outside the EU. X had based its argument on statistical data of the website CryptoCompare. This website contained market data of various crypto currencies. X had determined the percentage she claimed by matching the percentage of bitcoin trade which took place in the currencies of EU Member States.

    The Court did not find the statistical data provided by X to be applicable on a one-to-one basis, but did derive the presumption that part of the customers for X’s services were located outside the EU from the data. The Court considered it unlikely that this part would be more than 98% of the customers. The Court ruled that the number of customers from outside the EU was 75%, so that the additional tax assessment had to be reduced to €3,694 (25% of €14,788). The Court declared X’s appeal well-founded.

    Source (unofficial translation):


    Alida replied 2 years, 8 months ago 1 Member · 0 Replies
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