When does VAT apply to cryptocurrencies, such as Bitcoin and Ethereum? Does VAT apply when you exchange legal tender for cryptocurrency? (Or vice versa?) And what about mining cryptocurrency? Does such activity count as a supply, potentially subject to taxation?
The government of Canada wants to clarify the latter question. Canada’s government is proposing legislation to “clarify the GST/HST treatment of crypto asset mining, draft proposals would specify that crypto asset mining would generally not be considered a ‘supply’ for GST/HST purposes.”
In such a case, GST/HST would not apply to crypto mining itself.
This is not merely a theoretical question. In India, cryptocurrency exchanges are seeking clarity on their GST obligations, claiming current regulations are ambiguous.
Visa, Mastercard or Bitcoin?
What about paying for goods and services using cryptocurrency? In such cases, the tax implications seem clearer.
Consider HMRC’s initial guidance which said that if goods and services are sold in exchange for cryptocurrency, VAT is due as per normal. In such cases, VAT is due according to the equivalent value of legal tender of the point of exchange.
Global VAT regulation?
As Bitcoin and other cryptocurrencies become more mainstream, regulators are likely to coordinate on a tax framework.
However tax regulations ultimately develop, it is clear that new VAT rules are not just the concern of crypto exchanges. Anyone who makes a taxable supply using digital currencies will need to pay careful attention to the potential VAT implications. As these are likely to differ in each jurisdiction, businesses that operate in multiple countries will need expert up-to-date VAT advice.