Bitcoin and VAT Exemption in Europe

It is possible that the Dutch will now exempt transactions in bitcoin from VAT.  I am betting that they will. Why? Think about it. The European economy is in a funk. And traditional markets do not offer much solace. So you might expect the more innovative centers to be looking for something new. Something that will create a flow of transactions and the attendant side-benefits. Having a financial center does this. Attracting a flow of bitcoin transactions might also do it.

So while conservative policy makers still peer down their noses at bitcoin, that is likely to change. There will be growing pressure to give it a try. To provide some incentives for bitcoin exchanges to operate. And those exchange centers cannot do that if every exchange transaction produces a VAT charge. So exempting bitdoin exchanges from VAT is a first step to enabling exchanges to start up.

What is the next step? Isn’t it obvious? To get bitcoin flow going, you need to get people to use it. What people? What uses? Bitcoin will get used first where it offers the biggest benefits. Where is that? It is where transactions costs are highest. The next step is to create “transaction centers” that minimize those high costs and attract a flow of transactions. I am looking out for this type of thinking over the next year or two.

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