Ruling issued on VAT treatment of cryptocurrency platform transactions
Spain’s General Directorate of Taxation (GDT) issued a binding ruling in November 2021 on the VAT treatment of various services provided by a platform engaged in the cryptocurrency exchange business. The taxpayer requested a ruling on whether the following services it provides are subject to VAT:
- Over-the-counter purchase and sale of digitals assets with customers;
- Custody of cryptocurrencies; and
- “Staking services” or yields on deposits in “smart contracts.”
The GDT reached the following conclusions with regard to the platform’s activities:
- Over-the-counter purchase/sale transactions: The GDT summarises Spain’s policy, which is to treat the transfer of Bitcoin, cryptocurrencies and other digital coins as a financial transaction exempt from VAT based on the EU VAT directive as transposed into Spanish law. The GDT also referred to two decisions of the Court of Justice of the European Union (Granton Advertising (case C-416/12) and David Hedqvist (case C-264/14)), in which the court held that since cryptocurrencies are understood to be a payment instrument that allows money to be transferred, they are financial transactions and should be exempt from VAT. Thus, the GDT concluded that over-the-counter purchases and sales of cryptocurrencies carried out by the platform should be considered VAT-exempt financial transactions.
- Custody of cryptocurrency: The GDT took the position that having custody of cryptocurrencies through a platform that is not connected to the internet for security purposes is similar to renting a safe deposit box, which is not a financial transaction and, therefore, is subject to, but not exempt from, VAT.
- Staking activities: The GDT looked at the staking activities, under which the owners of the cryptocurrencies keep their cryptocurrencies blocked in a digital wallet in exchange for a return. Profits obtained by staking are deemed to be VAT-exempt transactions. However, the GDT concluded that the nature of the services provided to the cryptocurrency owners by signing a smart contract to enable them to carry out the staking activity would not qualify as a financial transaction. Consequently, the service will be subject to, but not exempt from, VAT.
The GDT ruling is binding on the Spanish tax authorities, the taxpayer who requested the ruling and any other taxpayer that has identical circumstances.
Alvaro Gómez Elvira
María González Ramos