BFG: Crypto mining as a VAT-exempt service

Sept 22, 2021 Benn-Ibler Rechtsanwälte

The Federal Fiscal Court (Bundesfinanzgericht, BFG) determined whether mining and exchange of cryptocurrencies are to be interpreted as sales tax-exempt services.

The complainant was a company in the field of blockchain and cryptocurrency technology, which concluded so-called managed hosting contracts with customers. These included

• Mining of cryptocurrencies on behalf of the client, and
• Exchanging mined cryptocurrencies for Bitcoins or other cryptocurrencies and transferring them to the customer's "digital wallet".

In the VAT assessment, these services were determined to be tax-exempt by the tax administration following the "Hedqvist" decision of the European Court of Justice (ECJ), which was the subject of the complainant's appeal.

The BFG had to classify these managed hosting contracts for VAT purposes. It stated that the mining process had the appearance of gambling, since the probability of success was statistically equivalent to participation in an Austrian lottery. The cryptocurrency network could be regarded as a gambling provider, and the individual miner as a gambler. This activity is therefore tax-exempt according to Section 6 (1) 9 lit. d sublit. aa of the Value Added Tax Act (Umsatzsteuergesetz, UstG).

With regard to the exchange, the BFG also refers to "Hedqvist", which was about the purchase of Bitcoins with Swedish kronor. In the decision, it is explained that Bitcoin can represent a pure means of payment without any independent value beyond that. Transactions through the exchange of such different means of payment are services for remuneration, provided that there is a connection between the service and the counter value received. According to the ECJ, such services are covered by the VAT exemption under Article 135 (1) (e) of the VAT System Directive (Mehrwertsteuersystemrichtlinie, MwStSystRL).

As a result, the BFG concluded that cryptocurrencies that are generated by similar processes as Bitcoin can also be regarded as pure means of payment if the conditions set by the ECJ are met. This was the case in the present case, which is why, analogous to the "Hedqvist" case, a service for payment could be assumed, which is tax-exempt according to Sec. 6 (1) 8 lit. b UstG.

RV/5100226/2021 (20.08.11)