Does #EUVAT make accepting bitcoins impossible for EU-based digital services businesses?

19 December 2014

Earlier on today I blogged a description of what we had to do at PythonAnywhere to handle the upcoming EU VAT (~= sales tax) changes for digital services. It’s a long post (though I tried to keep it as light as possible), but the short form is “it was hard, and at least in part unnecessarily so”.

In a comment, Hristo suggested a workaround: “Enter Bitcoin”.

It’s possible he meant “and ignore the tax authorities entirely”, but let’s consider the impact on businesses that want to play by the rules. I think Bitcoin could be worse than credit card billing. In fact, if I’m reading the regulations right (and I might not be, I was up at 5am for a deployment today), the EU VAT changes might make accepting bitcoins pretty much impossible for law-abiding online EU businesses selling digital services like hosting, music downloads, and ebooks.

Here’s why:

Under the new rules, we need two pieces of non-conflicting evidence as to a customer’s location. The IP address can be one of them, and for our credit card/PayPal customers we can use their billing address as another.

But for Bitcoin, there is no billing address — it’s essentially digital cash. And regarding the other kinds of acceptable evidence:

  • “location of the bank” — not applicable using Bitcoin.
  • “the country code of SIM card used by the customer” — not available for an ordinary Internet business.
  • “the location of the customer’s fixed land line through which the service is supplied to him” — not available for an ordinary Internet business.
  • “other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)” — not applicable for a standardised product. Possibly usable if you’re selling SaaS tax-filing or something else that’s entirely country-specific.

Now, perhaps that list is non-exhaustive. It’s hard to tell whether it is because it says we must “obtain and to keep in your records 2 pieces of non-contradictory evidence from the following list”, which implies that it’s an exhaustive list, but then says “Examples include”, which implies that it’s not.[UPDATE: they’ve updated the guidance, it’s definitely non-exhaustive] But even if it is non-exhaustive, and, say, you can use a scan of someone’s utility bill or other stuff like the proof of address stuff you need to provide when you start a bank account, I can’t think of anything that anyone would be likely to be willing to provide for digital services like web hosting, music, or ebooks.

All of this means that, at least from my reading of the rules, we cannot now accept bitcoins as a means of payment. I’ve asked our accountants their professional opinion. But I’m not holding out much hope.

What do you think? Am I missing something — perhaps some kind of other proof of location that an online business accepting Bitcoin could easily gather?

Or is Bitcoin now effectively sunk as a means of payment for digital goods sold by businesses in the EU?