The legal status of the cryptocurrency Bitcoin in countries around the world has still not achieved final stability. Instead, different legal systems wander among various possible solutions to the “Bitcoin” problem That, however, creates diverse yet chaotic legal organization of the virtual phenomenon that is here to stay.Arena of the most interesting and profound legal disputes on cryptocurrency are the US courts and the Internal Revenue Service (IRS). The most curious thing here is that the specific American judicial system is an intersection of different opinions and interpretations expressed in formalized decisions and legal acts.
In 2013, for example, the court released a ruling that was revolutionary in nature and content . The case was Securities and Exchange Commission (SEC) vs. Tendon Shavers. This is the first court judgement concerning cryptocurrency which acknowledges the existence of Bitcoin as a currency and as a form of legal tender (money). Trendon Shavers who operated Bitcoin Savings and Trust (BTCST) is the defendant accused of fraud. Huge number of investors never returned their investment, not to mention the additional income promised by Shavers. According to Forbes Magazine the fraud scheme amounting to 764,000 BTC was roughly equivalent to 4.5 million USD at the time of the fraud.
It was in the course of this case when Judge Amos L Mazzant ruled that Bitcoin can be used instead of money because one can pay for goods and services with them and cover daily expenses. Moreover, Judge Mazzant cleared out that Bitcoin can be exchanged for real currency such as USD, EURO, YEN, etc. The most important conclusion reached by the Texas magistrate Amos L Mazzant is:
“Bitcoin is a currency or form of money and investors wishing to invest in BTCST provided an investment of money.”
This court judgement clearly contradicts the Guidance of the US Department of Treasury (2013) in terms of virtual currency and the inability to associate virtual currency with real currency. Under this Guidance Bitcoin and other cryptocurrencies lack some key features of real currency and that makes it impossible to equate virtual currency with legal tender – money.
When we talk about the US magistrates’ disposition to recognize the status of currency for Bitcoin we should mention the case against Ross William Ulbricht. He was accused of developing and maintaining the illegal website Silk Road, which was allegedly used for selling drugs. In this case Judge Katherine Forrest ruled that Bitcoin carry value and that is precisely its purpose and function. Bitcoin can be exchanged for regular currency such as USD and that is why Judge Forrest overruled the claim that Bitcoin is not currency.
At this point we should mention what is the position of the Internal Revenue Service (IRS) regarding Bitcoin. IRS confirms that Bitcoin is “virtual currency” and admits the possibility that it can be used as legal tender in a particular environment and can be exchanged for real currency. Meanwhile IRS adopted the position that virtual currencies are considered and should be treated as property for tax purposes and obtaining Bitcoin means acquisition of ownership. According to some experts this decision of IRS creates problems and could discourage some Bitcoin users in the US.
In the European Union (EU) there is still no uniform regulation on virtual currencies. The European Banking Authority (EBA) has adopted guidelines regarding cryptocurrency as late as 2014. In these guidelines EBA mentions that virtual currencies are actively used for exchange of goods and services and that they carry value. However, these guidelines focus on the problems arising from the use of cryptocurrency like Bitcoin. Due to the many risks that the exchange, trading and possession of virtual currency entail, EBA recommends the introduction of a uniform EU regulation. Until this becomes a fact EBA focuses on the EU Member States that need to establish more effective control on virtual money and their participation in the commercial cycle.
EBA drew a potential plan based on the research and analysis of the consumption and commercial cycle for long-term and short-term development of the legal framework for electronic currencies in the EU. Part of the solution to this problem is the creation of specialized and centralized legal entity which would exercise control over transactions with virtual money; also the introduction of the so-called Customer Due Diligence (CDD) which includes identification of the customer, monitoring of transactions and provision of financing for terrorist groups, etc; also the regulation of registration for persons who engage in exchange of virtual currency under the laws of the country in which they are settled.
As there are no centralized EU regulations on cryptocurrencies, each Member State should decide independently on their status. Thus, some countries such as Finland, Belgium and Germany have already adopted Bitcoin, though in some cases they impose limitations. Bulgaria is among the countries that said “Yes!”to Bitcoin.
The Director of the National Revenue Agency (NRA) has already expressed an opinion on cryptocurrencies and on Bitcoin, in particular. In Bulgaria the income of an individual which is generated by the sale/exchange of virtual currency is taxable. The NRA acknowledges the existence of cryptocurrencies and treats the outcome of transactions and deals with cryptocurrencies as income from the sale of financial assets. According to Art. 33 para. 3 of the Personal Income Tax Act (PITA) taxable income from the sale or exchange of financial assets as well as foreign currency is the amount of gains during the year, determined for each specific transaction minus the sum of year losses, determined for each specific transaction. In other words the profit/loss for each transaction is determined as the cost of acquisition of the asses is subtracted from the sale price. These incomes shall be declared in the annual tax return.
Bitcoin transactions are included in the scope of Value Added Tax Act (VATA). Under the guidelines of the NRA the activity of selling virtual currency Bitcoin is considered a supply of services according to the VAT Act.
The legal interpretation of the NRA goes even further. According to Art. 135, 1, letter “g” of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, Member States shall exempt transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection. The NRA assumes that the virtual currency Bitcoin is precisely “other negotiable instruments” within the meaning of the Directive.
In light of the relationship between Greece and the EU we should mention the following interesting opinion. On May 8th this year in a commentary in CNBC the financial markets commentator Brian Kelly expressed the view that Greece can be saved from the crisis if the state introduces virtual currency like Bitcoin. According to Kelly the usage of such independent virtual currency will save the Greek citizens’ savings and will minimize the losses.
Nelly Morteva
1Legal.Net Blog © 2015
Materials published on this blog are copyrighted. No part of them can be copied or used without the express permission of the author.
There are no comments at the moment.