C-264/14 Hedqvist

JUDGMENT OF THE COURT (Fifth Chamber)

22 October 2015 ( * )

‛Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Articles 2(1)(c) and 135(1)(d) to (f) — Services for consideration — Transactions to exchange the ‘bitcoin’ virtual currency for traditional currencies — Exemption’

In Case C‑264/14,

REQUEST for a preliminary ruling under Article 267 TFEU, from the Högsta förvaltningsdomstolen (Supreme Administrative Court, Sweden), made by decision of 27 May 2014, received at the Court on 2 June 2014, in the proceedings

Skatteverket

v

David Hedqvist,

THE COURT (Fifth Chamber),

composed of T. von Danwitz, President of the Fourth Chamber, acting as President of the Fifth Chamber, D. Šváby, A. Rosas (Rapporteur), E. Juhász and C. Vajda, Judges,

Advocate General: J. Kokott,

Registrar: C. Strömholm, Administrator,

having regard to the written procedure and further to the hearing on 17 June 2015,

after considering the observations submitted on behalf of:

the Skatteverket, by M. Loeb, acting as legal adviser,

Hedqvist, by A. Erasmie, advokat, and F. Berndt, jur. kand.,

the Swedish Government, by A. Falk and E. Karlsson, acting as Agents,

the German Government, by T. Henze and K. Petersen, acting as Agents,

the Estonian Government, by K. Kraavi-Käerdi, acting as Agent,

the European Commission, by L. Lozano Palacios, M. Owsiany-Hornung, K. Simonsson and J. Enegren, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 16 July 2015,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling relates to the interpretation of Articles 2(1) and 135(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’).

2The request has been made in proceedings between the Skatteverket (Swedish tax authority) and Mr Hedqvist concerning a preliminary decision given by the Swedish Revenue Law Commission (Skatterättsnämnden) on whether transactions to exchange a traditional currency for the ‘Bitcoin’ virtual currency or vice versa, which Mr Hedqvist wished to perform through a company, were subject to value added tax (‘VAT’).

Legal context

EU law

3Article 2 of the VAT Directive provides:

‘1. The following transactions shall be subject to VAT:

the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

…’

4Article 14(1) of that directive provides:

‘“Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.’

5Article 24(1) of that directive is worded as follows:

‘“Supply of services” shall mean any transaction which does not constitute a supply of goods.’

6Article 135 of the VAT Directive provides:

‘(1) Member States shall exempt the following transactions:

…

transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest;

transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);

…’

Swedish law

7Under Chapter 1 of the Law (1994:200) on VAT, (mervärdesskattelagen (1994:200), ‘the Law on VAT’), Paragraph 1 provides that VAT is to be paid to the State on supplies within national territory of taxable goods or services effected by a taxable person acting as such.

8Under Chapter 3 of that law, Paragraph 23(1) provides that bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or which are of numismatic interest, are exempt from VAT.

9Also under Chapter 3, Paragraph 9 provides that supplies of banking and financial services and transactions involving securities and similar transactions are exempt from tax. Banking and financial services do not include notarial activity, collection of invoices or administrative services relating to factoring or the leasing of storage facilities.

The dispute in the main proceedings and the questions referred for a preliminary ruling

10Mr Hedqvist wishes to provide, through a company, services consisting of the exchange of traditional currency for the ‘bitcoin’ virtual currency and vice versa.

11According to the order for reference the ‘bitcoin’ virtual currency is used, principally, for payments made between private individuals via the internet and in certain online shops that accept the currency. The virtual currency does not have a single issuer and instead is created directly in a network by a special algorithm. The system for the ‘bitcoin’ virtual currency allows anonymous ownership and the transfer of ‘bitcoin’ amounts within the network by users who have ‘bitcoin’ addresses. A ‘bitcoin’ address may be compared to a bank account number.

12Referring to a 2012 report by the European Central Bank on virtual currencies, the referring court states that a virtual currency can be defined as a type of unregulated, digital money, which is issued and controlled by its developers and accepted by members of a specific virtual community. The ‘bitcoin’ virtual currency is one of the virtual currency schemes with ‘bidirectional flow’, which users can purchase and sell on the basis of an exchange rate. Such virtual currencies are analogous to other convertible currencies as regards their use in the real world. They allow both real and virtual goods and services to be purchased. Virtual currencies differ from electronic money, as defined in Directive 2009/110/EC of the European Parliament and the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (OJ 2009 L 267, p. 7), in so far as, unlike that money, for virtual currencies the funds are not expressed in traditional accounting units, such as in euro, but in virtual accounting units, such as the ‘bitcoin’.

13The referring court states that the transactions envisaged by Mr Hedqvist would be carried out electronically via the company’s website. That company would purchase units of the ‘bitcoin’ virtual currency directly from private individuals and companies, or from an international exchange site. The company would then resell the units on such an exchange site, or store them. Mr Hedqvist’s company would also sell such units to private individuals or to companies that place an order on its website. In a situation where the client has accepted the price in Swedish Crowns offered by Mr Hedqvist’s company and a payment has been received, the sold units of the ‘bitcoin’ virtual currency would be sent automatically to the ‘bitcoin’ address indicated. The ‘bitcoin’ virtual currency units sold by the company would either be those that it would purchase directly on the exchange site after the client had placed his order, or those that the company already had in stock. The price proposed by the company to clients would be based on the current price on a particular exchange site, to which a certain percentage would be added. The difference between the purchase price and the sale price would constitute Mr Hedqvist’s company’s earnings. The company would not charge any other fees.

14The transactions that Mr Hedqvist intends to carry out are thus limited to the purchase and sale of ‘bitcoin’ virtual currency units in exchange for traditional currencies, such as the Swedish crown, or vice versa. It is not apparent from the order for reference that those transactions would include payments made using ‘bitcoin’.

15Before starting to carry out such transactions, Mr Hedqvist requested a preliminary decision from the Revenue Law Commission in order to establish whether VAT must be paid on the purchase and sale of ‘bitcoin’ virtual currency units.

16In a decision of 14 October 2013, the Revenue Law Commission found, on the basis of the judgment in First National Bank of Chicago (C‑172/96, EU:C:1998:354), that Mr Hedqvist would be supplying an exchange service effected for consideration. The Revenue Law Commission held, however, that the exchange service was covered by the exemption under Chapter 3, Paragraph 9, of the Law on VAT.

17According to the Revenue Law Commission, the ‘bitcoin’ virtual currency is a means of payment used in a similar way to legal means of payment. Furthermore, the term ‘legal tender’ referred to in Article 135(1)(e) of the VAT Directive is used in order to restrict the scope of the exemption as regards bank notes and coins. It follows, according to the Revenue Law Commission, that that term must be taken to mean that it relates only to bank notes and coins and not to currencies. That interpretation is also consistent with the objective of the exemptions laid down in Article 135(1)(b) to (g) of the VAT Directive, namely to avoid the difficulties involved in making financial services subject to VAT.

18The Skatteverket appealed against the Revenue Law Commission’s decision to the Högsta förvaltningsdomstolen (Supreme Administrative Court) arguing that the service to which Mr Hedqvist’s request refers is not covered by the exemption under Chapter 3, Paragraph 9, of the Law on VAT.

19Mr Hedqvist submits that the appeal by the Skatteverket should be dismissed and the preliminary decision by the Revenue Law Commission should be confirmed.

20The referring court considers that it can be inferred from the judgment in First National Bank of Chicago (C‑172/96, EU:C:1998:354) that transactions to exchange a virtual currency for a traditional currency and vice versa, in return for payment of a sum equal to the difference between the purchase price paid by the operator and the sale price obtained by him, constitutes the provision of services for consideration. In such a case, the question arises whether the transactions are covered by one of the exemptions for financial services laid down in Article 135(1) of the VAT Directive, more specifically, those set out in points (d) to (f) of that provision.

21Having doubts as to whether one of those exemptions applies to such transactions, the Högsta förvaltningsdomstolen (Supreme Administrative Court) decided to stay the proceedings and refer the following questions to the Court of Justice for a preliminary ruling:

Is Article 2(1) of the VAT Directive to be interpreted as meaning that transactions in the form of what has been described as the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration added by the supplier when the exchange rates are determined, constitute the supply of a service effected for consideration?

If so, must Article 135(1) [of that directive] be interpreted as meaning that the abovementioned exchange transactions are tax exempt?’

The questions referred

The first question

22By its first question, the referring court asks, in essence, whether Article 2(1)(c) of the VAT Directive 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, constitutes the supply of services for consideration within the meaning of that article.

23Article 2(1) of the VAT Directive provides that the supply of goods and services for consideration within the territory of a Member State by a taxable person acting as such is to be subject to VAT.

24It must be held, first, that the ‘bitcoin’ virtual currency with bidirectional flow, which will be exchanged for traditional currencies in the context of exchange transactions, cannot be characterised as ‘tangible property’ within the meaning of Article 14 of the VAT Directive, given that, as the Advocate General has observed in point 17 of her Opinion, that virtual currency has no purpose other than to be a means of payment.

25The same is true for traditional currencies, since it involves money which is legal tender (see, to that effect, judgment in First National Bank of Chicago, C‑172/96, EU:C:1998:354, paragraph 25).

26Consequently, the transactions at issue in the main proceedings, which consist of the exchange of different means of payment, do not fall within the concept of the ‘supply of goods’, laid down in Article 14 of the directive. In those circumstances, those transactions constitute the supply of services, within the meaning of Article 24 of the VAT Directive.

27As regards, in the second place, the supply of services for consideration, it must be recalled that a supply of services is effected ‘for consideration’ within the meaning of Article 2(1)(c) of the VAT Directive, and is therefore subject to VAT, only if there is a direct link between the services supplied and the consideration received by the taxable person (judgments in Loyalty Management UK and Baxi Group, C‑53/09 and C‑55/09, EU:C:2010:590, paragraph 51 and the case-law cited, and Serebryannay vek, C‑283/12, EU:C:2013:599, paragraph 37). Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration given in return for the service supplied to the recipient (judgment in Le Rayon d’Or, C‑151/13, EU:C:2014:185, paragraph 29 and the case-law cited).

28In the case in the main proceedings, it is clear from the material in the case file submitted to the Court that there would be a synallagmatic legal relationship between Mr Hedqvist’s company and the other party to the contract in which the parties to the transaction would agree, reciprocally, to transfer amounts of a certain currency and receive the corresponding value in a virtual currency with bidirectional flow, or vice versa. It is also clear that Mr Hedqvist’s company would be remunerated for supplying the service by a consideration equal to the margin that it would include in the calculation of the exchange rate at which it would be willing to sell and purchase the currencies concerned.

29The Court has already held that it is irrelevant, for the purposes of determining whether a supply of services is effected for consideration, that the remuneration does not take the form of a payment of a commission or specific fees (judgment in First National Bank of Chicago, C‑172/96, EU:C:1998:354, paragraph 33).

30Having regard to the foregoing considerations, it must be held that transactions such as those at issue in the main proceedings, constitute the supply of services for a consideration that has a direct link with the service provided, that is to say, the supply of services for consideration within the meaning of Article 2(1)(c) of the VAT Directive.

31Consequently, the answer to the first question is that Article 2(1)(c) of the VAT Directive 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.

The second question

32By its second question, the referring court asks, in essence, whether Article 135(1)(d) to (f) of the VAT Directive 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 exempt from VAT.

33As a preliminary point, it should be borne in mind that, in accordance with the Court’s case-law, the exemptions laid down in Article 135(1) of the VAT Directive constitute independent concepts of EU law whose purpose is to avoid divergences in the application of the VAT system as between one Member State and another (see, inter alia, judgments of Skandinaviska Enskilda Banken, C‑540/09, EU:C:2011:137, paragraph 19 and the case-law cited, and DTZ Zadelhoff, C‑259/11, EU:C:2012:423, paragraph 19).

34It is also established case-law that the terms used to specify those exemptions are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (judgments in Ludwig, C‑453/05, EU:C:2007:369, paragraph 21, and DTZ Zadelhoff, C‑259/11, EU:C:2012:423, paragraph 20).

35Nevertheless, the interpretation of those terms must be consistent with the objectives pursued by the exemptions laid down in Article 135(1) of the VAT Directive and comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT. Thus, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in Article 135(1) must be construed in such a way as to deprive the exemptions of their effect (see, inter alia, judgments in Don Bosco Onroerend Goed, C‑461/08, EU:C:2009:722, paragraph 25; DTZ Zadelhoff, C‑259/11, EU:C:2012:423, paragraph 21; and J.J. Komen en Zonen Beheer Heerhugowaard, C‑326/11, EU:C:2012:461, paragraph 20).

36In that regard, it is clear from the Court’s case-law that the purpose of the exemptions laid down in Article 135(1)(d) to (f) of the VAT Directive is, inter alia, to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible (see, inter alia, judgment in Velvet & Steel Immobilien, C‑455/05, EU:C:2007:232, paragraph 24, and the Order in Tiercé Ladbroke, C‑231/07 and C‑232/07, EU:C:2008:275, paragraph 24).

37Moreover, the transactions exempt from VAT under those provisions are, by their nature, financial transactions even though they do not necessarily have to be carried out by banks or financial institutions (see judgments in Velvet & Steel Immobilien, C‑455/05, EU:C:2007:232, paragraphs 21 and 22 and the case-law cited, and Granton Advertising, C‑461/12, EU:C:2014:1745, paragraph 29).

38As regards, in the first place, the exemptions laid down in Article 135(1)(d) of the VAT Directive, it should be recalled that, according to that provision, Member States are to exempt transactions involving, inter alia, ‘deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’.

39The transactions exempted under that provision are thus defined according to the nature of the services provided. In order to be regarded as exempt transactions the services in question must, viewed broadly, form a distinct whole, fulfilling the specific, essential functions of a service described in that provision (see judgment in Axa UK, C‑175/09, EU:C:2010:646, paragraphs 26 and 27 and the case-law cited).

40It is clear from the wording of Article 135(1)(d) of the VAT Directive, read in the light of the judgment in Granton Advertising (C‑461/12, EU:C:2014:1745, paragraphs 37 and 38), that the transactions referred to in that provision concern services or instruments that operate as a way of transferring money.

41Furthermore, as the Advocate General observed in points 51 and 52 of her Opinion, that provision does not cover transactions that involve money itself, which are the object of a specific provision, namely Article 135(1)(e) of the VAT Directive.

42The ‘bitcoin’ virtual currency, being a contractual means of payment, cannot be regarded as a current account or a deposit account, a payment or a transfer. Moreover, unlike a debt, cheques and other negotiable instruments referred to in Article 135(1)(d) of the VAT Directive, the ‘bitcoin’ virtual currency is a direct means of payment between the operators that accept it.

43Therefore, transactions such as those in the main proceedings do not fall within the scope of the exemptions provided for under that provision.

44As regards, in the second place, the exemptions laid down in Article 135(1)(e) of the VAT Directive, that provision provides that Member States are to exempt transactions involving, inter alia, ‘currency [and] bank notes and coins used as legal tender’.

45In that regard, it must be recalled that the concepts used in that provision must be interpreted and applied uniformly in the light of the versions in all the languages of the European Union (see, to that effect, judgments in Velvet & Steel Immobilien, C‑455/05, EU:C:2007:232, paragraph 16 and the case-law cited, and Commission v Spain, C‑189/11, EU:C:2013:587, paragraph 56).

46As the Advocate General observes at points 31 to 34 of her Opinion, the various language versions of Article 135(1)(e) of the VAT Directive do not allow it to be determined without ambiguity whether that provision applies only to transactions involving traditional currencies or whether, on the contrary, it is also intended to cover transactions involving another currency.

47Where there are linguistic differences, the scope of the expression in question cannot be determined on the basis of an interpretation which is exclusively textual. That expression must therefore be interpreted in the light of the context in which it is used and of the aims and scheme of the VAT Directive (see judgments in Velvet & Steel Immobilien, C‑455/05, EU:C:2007:232, paragraph 20 and the case-law cited, and Commission v Spain, C‑189/11, EU:C:2013:587, paragraph 56).

48As is recalled in paragraphs 36 and 37 of this judgment, the exemptions laid down by Article 135(1)(e) of the VAT Directive are intended to alleviate the difficulties connected with determining the taxable amount and the amount of VAT deductible which arise in the context of the taxation of financial transactions.

49Transactions involving non-traditional currencies, that is to say, currencies other than those that are legal tender in one or more countries, in so far as those currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to be a means of payment, are financial transactions.

50Furthermore, as Mr Hedqvist submitted, in essence, at the hearing, in the case of exchange transactions in particular, the difficulties connected with determining the taxable amount and the amount of VAT deductible may be the same, whether it is a case of the exchange of traditional currencies, normally entirely exempt under Article 135(1)(e) of the VAT Directive, or the exchange of such currencies for virtual currencies with bi-directional flow, which — without being legal tender — are a means of payment accepted by the parties to a transaction, and vice versa.

51It therefore follows from the context and the aims of Article 135(1)(e) that to interpret that provision as including only transactions involving traditional currencies would deprive it of part of its effect.

52In the case in the main proceedings, it is common ground that the ‘bitcoin’ virtual currency has no other purpose than to be a means of payment and that it is accepted for that purpose by certain operators.

53Consequently, it must be held that Article 135(1)(e) of the VAT Directive also covers 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.

54As regards, finally, the exemptions laid down in Article 135(1)(f) of the VAT Directive, it suffices to recall that that provision covers, inter alia, transactions in ‘shares, interests in companies or associations, debentures and other securities’, namely securities conferring a property right over legal persons and ‘other securities’ that have to be regarded as being comparable in nature to the other securities specifically mentioned in that provision (judgment in Granton Advertising, C‑461/12, EU:C:2014:1745, paragraph 27).

55It is common ground that the ‘bitcoin’ virtual currency is neither a security conferring a property right nor a security of a comparable nature.

56Therefore the transactions at issue in the main proceedings do not fall within the scope of the exemptions laid down in Article 135(1)(f) of the VAT Directive.

57Having regard to the foregoing considerations, the answer to the second question is that:

Article 135(1)(e) of the VAT Directive 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 the VAT Directive must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.

Costs

58Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Fifth Chamber) hereby rules:

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.

Signatures

[Signatures]

( * ) Language of the case: Swedish.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 16 July 2015 ¹

‛Tax legislation — Value-added tax — Exchange of the virtual currency ‘bitcoin’ for a conventional currency — Article 2(1)(c) of Directive 2006/112/EC — Taxation of supplies of services effected for consideration — Article 135(1)(d) of Directive 2006/112/EC — Exemption of transactions concerning negotiable instruments — Article 135(1)(e) of Directive 2006/112/EC — Exemption of transactions concerning currencies — Article 135(1)(f) of Directive 2006/112/EC — Exemption of transactions in securities)’

I – Introduction

1In these proceedings the Court of Justice will for the first time address the question of the treatment for VAT purposes of the exchange of the virtual currency ‘bitcoin’ for conventional currencies. To this end, further clarification is required of the scope of the exemptions for financial transactions in particular.

II – Legislative framework

2Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the ‘VAT Directive’) provides that the following are to be subject to VAT:

‘(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;’

3However, Article 135(1) of the VAT Directive provides that the Member States are to exempt the following transactions from VAT:

‘…

transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;

transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest;

transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);

…’

4Provisions corresponding to these exemptions are found in Article 13B(d)(3) to (5) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, ² which was in force until 31 December 2006. In so far as the Court of Justice has interpreted the latter provisions, those findings may also be used in the present case.

5Swedish law contains provisions corresponding to the abovementioned provisions of EU law.

III – The main proceedings

6Mr Hedqvist plans to engage, via the internet, in the purchase and sale of the virtual currency ‘bitcoin’ (bitcoins) for Swedish crowns. The price of the bitcoins will be based on the exchange rate on a particular exchange site plus or minus a certain percentage as consideration for the exchange.

7According to the findings of the referring court, bitcoins are accepted as a means of payment by a number of private individuals and internet traders. Bitcoins are stored as data either on the user’s computer or on the computer of a third party service provider and are only transferred electronically. They do not have a particular issuer but are created on the internet by an algorithm programmed by an as yet unknown individual. Bitcoins are not designated as legal tender in any country.

8Before taking up the activity, Mr Hedqvist requested a preliminary decision from the Skatterättsnämnd (Swedish Revenue Law Commission) to establish whether he was required to pay VAT on the purchase and sale of bitcoins as described. The preliminary decision found the purchase and sale of bitcoins to be a supply of services for consideration which was however exempt from VAT because bitcoins are a means of payment which is used in a manner corresponding to a legal means of payment. However, the Swedish tax administration appealed against this preliminary decision.

IV – Proceedings before the Court of Justice

9The Högsta förvaltningsdomstol (Supreme Administrative Court), before which the dispute has now been brought, considers that European Union VAT law will determine the dispute and on 2 June 2014 therefore referred the following questions to the court pursuant to Article 267 TFEU:

‘(1) Is Article 2(1) of the VAT Directive to be interpreted as meaning that transactions in the form of what has been described as the exchange of virtual currency for traditional currency and vice versa, which is effected for consideration included by the supplier when the exchange rates are determined, constitute the supply of a service effected for consideration?

(2) If so, must Article 135(1) [of that directive] be interpreted as meaning that the abovementioned exchange transactions are tax exempt?’

10In the proceedings before the Court of Justice, written observations regarding these questions were submitted by the Swedish tax authority (Skatteverket), Mr Hedqvist, the Federal Republic of Germany, the Republic of Estonia and the European Commission. At the oral hearing on 17 June 2015, arguments were submitted by Mr Hedqvist, the Kingdom of Sweden, the Federal Republic of Germany and the Commission.

V – Legal assessment

11The present proceedings concern two different issues. First, they concern the taxability of the exchange transactions, that is to say, the question of whether this activity produces a chargeable event under the VAT Directive (section A). Secondly, in the event that the exchange transactions are taxable, it must be clarified whether they are tax exempt (section B).

A – The exchange of bitcoins as the supply of a service effected for consideration

12By its first question, the referring court asks whether an activity such as that planned by Mr Hedqvist must be considered as the supply of a service effected for consideration within the meaning of Article 2(1)(c) of the VAT Directive and is thus in principle subject to VAT.

13Ruling on a similar question in First National Bank of Chicago the Court of Justice held that the exchange of currencies in relation to which a bank sets different rates for the sale and purchase of the currencies involved constitutes the supply of a service effected for consideration. ³ However, the taxable service effected by the bank comprised the exchange activity only, and not the transfer of the currencies themselves. The Court of Justice considered that this transfer constituted neither a supply of goods nor a supply of services, as the currencies were legal tender. ⁴ The court found that in principle the consideration for the taxable exchange service consisted in the difference between the purchase and sale prices for the currencies.

14The judgment was based on the fact that the transfer of legal tender as such is accepted as not constituting a chargeable event for VAT purposes. ⁵ Rather, such a transfer can in principle ⁶ only constitute the consideration for a taxed supply, as VAT is a tax on the end consumption of goods. ⁷ Currencies currently used as legal tender — unlike gold or cigarettes, for instance, which also are or have been used directly or indirectly as means of payment — have no other practical use than as a means of payment. Their function in a transaction is simply to facilitate trade in goods in an economy; as such, however, they are not consumed or used as goods.

15That which applies for legal tender should also apply for other means of payment with no other function than to serve as such. Even though such pure means of payment are not guaranteed and supervised by law, for VAT purposes they perform the same function as legal tender and as such must, in accordance with the principle of fiscal neutrality in the form of the principle of equal treatment, ⁸ be treated in the same way.

16This is consistent with the case-law. The case-law treats legal tender and other pure means of payment — such as vouchers with a face value ⁹ or the purchase of ‘points rights’ for later use in hotels or accommodation ¹⁰ — in largely ¹¹ the same way, in that in the latter cases the transfer of the means of payment is not held to constitute a taxable transaction.

17According to the findings of the referring court, bitcoins also constitute a pure means of payment. The only purpose of possessing them is to reuse them as a means of payment at some point. For the purposes of the chargeable event for VAT, therefore, they must be treated in the same way as legal tender.

18Consequently, the approach in First National Bank of Chicago must also be applied to bitcoins. Their transfer as such does not constitute a chargeable event. However, as Mr Hedqvist plans to buy and sell bitcoins for Swedish crowns at a price which includes a mark-up on the exchange rate on a particular exchange site, his activity includes the supply of services for consideration in accordance with Article 2(1)(c) of the VAT Directive in the form of the exchange.

B – Exemption of the exchange of bitcoins

19Secondly, it must be clarified whether the service of exchanging bitcoins and Swedish crowns is covered by one of the exemptions provided for in Article 135(1) of the VAT Directive. The order for reference correctly identifies subparagraphs (d), (e) and (f) of this provision as possible exemptions. I will examine them in reverse order.

1. Transactions in securities (subparagraph (f))

20Article 135(1)(f) of the VAT Directive exempts transactions in ‘shares, interests in companies …, debentures and other securities’.

21The exchange of bitcoins for Swedish crowns could only be covered by this exemption if at least one of them constituted ‘other securities’ within the meaning of the provision.

22However, as recently held by the Court of Justice, Article 135(1)(f) of the VAT Directive covers only property rights over legal persons, pecuniary claims against a specific debtor and related rights. ¹² Neither Swedish crowns nor bitcoins fall into any of these three categories.

23The exemption provided for in Article 135(1)(f) of the VAT Directive is therefore not applicable in the present case.

2. Transactions concerning means of payment (subparagraph (e))

24The next question is whether the tax exemption provided for in Article 135(1)(e) of VAT Directive applies. Under this subparagraph, transactions concerning ‘currency, bank notes and coins used as legal tender’ are tax exempt.

25The first condition for exemption is a connection to means of payment, whether in cash or non-cash form. As is moreover shown by the English version of Article 135(1)(e) of the VAT Directive, which refers to ‘currency, bank notes and coins’, the scope of this provision covers any currency in general and not — as suggested by use of the term ‘Devisen’ in the German version — only foreign currencies.

26However, if the exemption is to cover all transactions ‘concerning’ means of payment, the question of which transactions those should be is not easy to answer. The wording is extremely broad, as ultimately any transaction paid for with money concerns a means of payment. This also applies if one were to require, in line with the case-law regarding the exemption for transactions in securities provided for in Article 135(1)(f) of the VAT Directive, ¹³ that the transaction be liable to create, alter or extinguish parties’ rights and obligations in respect of means of payment.

27First of all, it is clear that the exemption cannot apply if only one party to a transaction transfers a means of payment while the other party supplies goods or effects services. In that case, transfer of the means of payment would constitute consideration for a supply of goods or services. If the exemption were applied to such unilateral transfers of means of payment, all transactions, except barter transactions, would be VAT exempt.

28The exemption may, however, be applicable if, as in the case at hand, one means of payment is exchanged for another for consideration. In that case — as shown ¹⁴ — the taxed transaction is then the exchange service. This service ‘concerns’ means of payment within the meaning of Article 135(1)(e) of the VAT Directive, specifically the exchange thereof, and this exchange also establishes rights and obligations in relation to the means of payment.

29However, in the present case, where Swedish crowns, which are legal tender in the Kingdom of Sweden, are exchanged for bitcoins, which are not legal tender in any country, the following question arises: Must both of the means of payment involved in the exchange be legal tender?

30The wording of Article 135(1)(e) does not give a clear answer to this question.

31The German version in particular can be understood as requiring both means of payment involved in the exchange to be legal tender (‘Devisen …, die gesetzliches Zahlungsmittel sind’ — ‘currencies ... which are legal tender’).

32However, the English version merely refers to ‘currency’ in the singular. The English wording would therefore be satisfied by an exchange involving legal tender, in this case the Swedish crown, on one side only.

33More open is the Finnish version which does not even require that currencies be legal tender, but only that bank notes and coins be so. ¹⁵ All currencies in non-cash form — even virtual currencies like bitcoins — could be covered by the exemption under that wording.

34Furthermore, the Italian version even calls into question whether the means of payment involved need to have legal status at all. It states that transactions concerning means of payment ‘con valore liberatorio’ are exempt from VAT. As such, in this version it is the debt-discharging effect of the means of payment that is key. On the other hand, the term ‘corso legale’, which refers to legal tender in Italian, as is apparent inter alia from Article 10(2) of Regulation No 974/98, ¹⁶ and which is also used in Article 344(1) No 2 of the VAT Directive, is not used. However, bitcoins can also have the effect of discharging a debt if the relevant parties so agree.

35Due to the different language versions, the question of which means of payment are covered by the exemption provided for in Article 135(1)(e) of the VAT Directive can be answered only by reference to the purpose of the exemption. ¹⁷ In the present case, it is necessary only to examine whether the exchange of legal tender for a pure means of payment which is not legal tender is covered by the purpose of the exemption.

36As the Court of Justice has repeatedly held, the exemptions now contained in subparagraphs (b) to (g) of Article 135(1) of the VAT Directive cover ‘financial transactions’. ¹⁸ In any event, exchanges of pure means of payment which, as here, involve only one legal tender also have the characteristics of a financial transaction. This follows for the simple reason that, as seen, ¹⁹ for VAT purposes the transfer of pure means of payment fulfils a payment function only.

37However, the Court of Justice has not previously ruled on the specific purpose of the exemption provided for in subparagraph (e) of Article 135(1) of the VAT Directive to be interpreted here.

38A VAT exemption always results in a reduction in the costs of supply. In the case at hand, this concerns exchange services involving pure means of payment. In my opinion, the objective of the exemption for transactions concerning means of payment is to not impede the convertibility of pure means of payment by levying VAT. This is also of significance in relation to the single market. In so far as cross-border services require the customer to exchange currencies, the levying of VAT on the exchange service would increase the price of a cross-border service as compared to a domestic service still further.

39The exemption is not limited to currencies used within the European Union, however. All of the world’s currencies are covered by the exemption. It follows that the objective of Article 135(1)(e) of the VAT Directive is to ensure that, in the interests of the smooth flow of payments, the conversion of currencies is as unencumbered as possible.

40Exempting from VAT the exchange of legal tender for a means of payment which does not have legal status but which nevertheless is a pure means of payment, such as the bitcoins in this case, is in line with this objective. In so far as means of payment exist which are involved in payment transactions because they fulfil the same payment function in the course of trade as legal tender, the levying of VAT on exchanges of such means of payment would constitute an additional burden on payments.

41Moreover, Article 135(1)(e) of the VAT Directive must be interpreted in line with primary law ²⁰ and in particular the general principle of equal treatment provided for in Article 20 of the Charter of Fundamental Rights. In this regard, the Court of Justice makes frequent reference to the principle of neutrality and, for the purpose of realising neutrality in competition in the VAT system, requires similar transactions to be taxed similarly. ²¹

42In light of this, to justify different treatment in the present case, there would need to be a material difference between the exchange of legal tender for legal tender and the exchange of legal tender for other, pure means of payment which are not legal tender, such as the bitcoins in this case. This is because both forms of means of payment, provided they are accepted in the course of trade, perform the same payment function.

43With regard to VAT, I discern no such substantial difference.

44The lack of stable value and vulnerability to fraud of bitcoins, raised by the Federal Republic of Germany in particular, cannot justify different treatment. Regardless of whether, depending on the currency, legal tender is also subject to such risks to the same extent, the only place for considerations of this kind is the governmental supervision of the financial markets. VAT is independent of this, however. It is clear from the case-law that even if a practice is prohibited under supervisory law, its assessment for VAT purposes is unaffected. ²² Thus, whether bitcoins constitute a ‘good’ or a ‘bad’ currency is irrelevant for the purpose of the present proceedings.

45Consequently, the exemption provided for in Article 135(1)(e) of the VAT Directive also applies if, as in the present case, a currency used as legal tender is exchanged for another currency which, although not used as legal tender, is involved in payment transactions as a pure means of payment.

3. Transactions concerning negotiable instructions (subparagraph (d))

46The Court of Justice may, contrary to my view, hold that the exemption for means of payment in accordance with Article 135(1)(e) of the VAT Directive is inapplicable in this case because bitcoins are not legal tender. In that case, it would also be necessary to examine whether the exemption in Article 135(1)(d) of the VAT Directive may apply in the present case.

47To the extent that this provision concerns ‘payments and transfers’, the exchange services in the present case would not be exempt, because they do not comprise the execution of cash and non-cash payments to a particular third-party recipient.

48However, Article 135(1)(d) of the VAT Directive also exempts transactions ‘concerning debts, cheques and other negotiable instruments’. This would raise the question of whether bitcoins constitute ‘other negotiable instruments’ within the meaning of this exemption.

49In Granton Advertising, the Court of Justice indicated that the exemption covers various forms of money transfer. ²³ In my Opinion in that case I too considered that the objective of the exemption is to treat rights which are regarded in the course of trade as being similar to money in the same way as payments of money for VAT purposes and thus to exempt them from VAT. ²⁴

50Nevertheless, application of this exemption in the present case must be denied, for two reasons.

51Firstly, Article 135(1)(d) of the VAT Directive concerns only derivatives of currency, such as debts, cheques and other ‘instruments’, and not the currencies themselves. In the present case, however, it is not rights to bitcoins which are exchanged, but the bitcoins themselves. In light of this, there is no need to clarify whether this exemption covers only rights concerning legal tender, as argued by the Republic of Estonia.

52Secondly, there is a special provision exempting transactions concerning a currency itself, namely Article 135(1)(e) of the VAT Directive, the applicability of which was examined in the previous section. If the Court of Justice were to find that transactions directly concerning a virtual currency such as bitcoins are not covered by this special provision because only the exchange of legal tender is to be exempted, then to interpret another exemption widely instead would be to disregard such legislative decision. Transactions directly concerning currencies are either exempt under the special rule provided for this purpose in Article 135(1)(e) of the VAT Directive, if its conditions are met, or they are not exempt. Otherwise, the conditions laid down in this exemption would ultimately be meaningless.

53Under no circumstances, therefore, is the exemption provided for in Article 135(1)(d) of the VAT Directive applicable in the present case.

VI – Conclusion

Conclusion

54In the light of the foregoing, I propose to the Court that the answer to the questions referred by the Högsta förvaltningsdomstol should be as follows:

The exchange of a pure means of payment for legal tender and vice versa, which is effected for consideration included by the supplier when the exchange rates are determined, constitutes the supply of a service effected for consideration within the meaning of Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.

Such transactions are exempt from VAT under Article 135(1)(e) of Directive 2006/112.

¹ Original language: German.

² OJ 1977 L 145, p. 1.

³ Judgment in First National Bank of Chicago (C‑172/96, EU:C:1998:354, paragraphs 25 to 35).

⁴ See judgment in First National Bank of Chicago (C‑172/96, EU:C:1998:354, paragraph 25).

⁵ See also to that effect judgment in Mirror Group (C‑409/98, EU:C:2001:524, paragraph 26).

⁶ This may well be different in the case of transfer of legal tender constituting collectors’ items within the meaning of Article 135(1)(e) of the VAT Directive.

⁷ See, to that effect, judgments in Netto Supermarkt (C‑271/06, EU:C:2008:105, paragraph 21 and the case-law cited therein) and Dresser Rand (C‑606/12 and C‑607/12, EU:C:2014:125, paragraph 28 and the case-law cited therein).

⁸ See inter alia judgments in Commission v France (C‑481/98, EU:C:2001:237, paragraph 22); NCC Construction Danmark (C‑174/08, EU:C:2009:669, paragraph 44); and Zimmermann (C‑174/11, EU:C:2012:716, paragraph 48).

⁹ See, to that effect, judgment in Argos Distributors (C‑288/94, EU:C:1996:398).

¹⁰ See judgment in Macdonald Resorts (C‑270/09, EU:C:2010:780, particularly paragraphs 21 and 32).

¹¹ The judgment in Astra Zeneca UK (C‑40/09, EU:C:2010:450) can be understood differently.

¹² See judgment in Granton Advertising (C‑461/12, EU:C:2014:1745, paragraphs 27 and 31).

¹³ See inter alia judgments in CSC Financial Services (C‑235/00, EU:C:2001:696, paragraph 33) and Deutsche Bank (C‑44/11, EU:C:2012:484, paragraph 37).

¹⁴ See paragraph 18 above.

¹⁵ The Finnish version refers to ‘valuuttaa sekä laillisina maksuvälineinä käytettäviä seteleitä ja kolikoita’ which essentially means ‘bank notes and coins used as legal tender and currencies’.

¹⁶ Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro (OJ 1998 L 139, p. 1), most recently amended by Council Regulation (EU) No 827/2014 of 23 July 2014.

¹⁷ See, for example, judgment in T. (C‑373/13, EU:C:2015:413, paragraph 62 and the case-law cited).

¹⁸ See judgment in Granton Advertising (C‑461/12, EU:C:2014:1745, paragraph 29 and the case-law cited therein).

¹⁹ See paragraphs 14 to 16 above.

²⁰ See, to that effect, judgments in Sturgeon and Others (C‑402/07, EU:C:2009:716, paragraph 48); Chatzi (C‑149/10, EU:C:2010:534, paragraph 43); and Commission v Strack (C‑579/12 RX-II, EU:C:2013:570, paragraph 40).

²¹ See inter alia judgments in Commission v Germany (C‑109/02, EU:C:2003:586, paragraph 20); JP Morgan Fleming Claverhouse Investment Trust and The Association of Investment Trust Companies (C‑363/05, EU:C:2007:391, paragraph 46); and Commission v Sweden (C‑480/10, EU:C:2013:263, paragraph 17).

²² See judgment in GfBk (C‑275/11, EU:C:2013:141, paragraph 32).

²³ See, to that effect, judgment in Granton Advertising (C‑461/12, EU:C:2014:1745, paragraph 37).

²⁴ See my Opinion in Granton Advertising (C‑461/12, EU:C:2013:700, paragraph 41).