Good news on bitcoin and a mixed consultation from the EBA on risk factors for SDD and EDD

1. The CJEU published its findings on the Hedqvist v Swedish Supreme Administrative Court (C264/14) today; which was consistent with the earlier opinion from the advocate general. The question was whether the sale of bitcoin fell within the scope of VAT, and if so, whether it could benefit from any of the exemptions to the regime. The answer is that bitcoin can benefit from the same exemption that is available to cash, meaning that bitcoin can be used as an effective means of payment. Had VAT been chargeable on bitcoin itself, it would have made its use as a currency impossible. This is because, for example the purchase of £10 worth of bitcoin would cost £12 in the UK, if the VAT rate was 20%, but leaving the user with just £10 of bitcoin to spend. There would in effect be a double Charge of VAT, first on the bitcoin and then on the chargeable item being purchased.

It is likely that other similar digital currencies could also benefit from this treatment. This is a great result for providers across the European Union as the judgment does not only apply to Sweden but also to all other Member States.

Congratulations to David Hedqvist for seeing this through, and the bitcoin companies that supported him in the case.

2. The EBA published its draft Guidelines on the risk factors that have to be taken into consideration when considering whether to apply simplified due diligence (SDD) or enhanced due diligence (EDD) to a customer.

The SDD provisions are of particular importance, and whilst most of the provisions are balanced and well informed, there is an exception. Currently e-money issuers are able to postpone verification of identity until a cumulative (annual) spend threshold of EUR 2500 had been reached – subject to other conditions. The draft Guidelines, (which are open for consultation until the 22nd of January) leave the limit open, and should offer significant flexibility depending on the approach of the national member state regulator.

It can in fact be argued that higher limits better address law enforcement concerns, as they encourage cash substitution while providing far more visibility and traceability of users. This is the case even when relying on SDD provisions.

Postponement of CDD is not only a matter of convenience or cost, it is one of access to customers. New innovative payment service providers who need to build their user base must ensure low barriers to entry.

The EMA will respond to the consultation and represent the views of e-money issuers. This is a matter of significant importance, and is worthy of attention.

The above article was written by Dr Thaer Sabri, EMA CEO