Dutch Court Rejects VAT Deduction Claim in Crypto Case

The Hague District Court published a ruling in a case involving a company operating a crypto platform and input VAT deduction for services provided to non-EU customers. More specifically, the dispute between the company and the Dutch Tax Authority concerns cryptocurrency transactions dating back to 2017 and 2018, as well as the company's right to deduct VAT.

Facts of the Case and the Court's Decision

In 2017 and 2018, the company operated a digital crypto exchange platform that allowed customers to buy and sell cryptocurrencies at the exchange rate set by the company. For the services provided to customers, the company charged fees. During the same period, the company also conducted cryptocurrency transactions with non-EU companies, such as US-based exchange Bittrex. However, in this case, the company paid for services provided by these non-EU businesses.

In 2022, the Tax Authority issued an additional VAT assessment based on the company's supplementary declaration, denying the deduction of input VAT claimed for services provided to non-EU customers. The company appealed against such a decision, claiming it should be annulled, arguing that it provided services to and received services from its customers, including Bittrex, and that the remuneration for these services reflects the gross outcome of all transactions in 2017 and 2018. 

Moreover, the company held that, since Bittrex users are non-EU, it is entitled to deduct input VAT, claiming deduction rates of 42% for 2017 and 40% for 2018, or an appropriate rate. In contrast, the Tax Authority claimed that the company receives services only from Bittrex, pays the agreed fees, and does not provide any corresponding services. Therefore, the Tax Authority concluded that the input VAT deduction rate should be limited to 25%.

The Hague District Court cited established ECJ case law, under which a service is considered provided for consideration if there is a direct link between the service supplied and the payment received by the taxable person. The case explicitly requires a legal relationship, such as a contract or other legal obligation, between the supplier and the recipient, in which services are exchanged, and the payment reflects the actual consideration for those services.

Following this logic, and based on the provided evidence and statements, the Court found that Bittrex did not pay any fee to the company, indicating that the company only receives services from the US-based company, without providing any services. Thus, the company does not have any customers located or established outside the EU, which makes the question of deduction rate irrelevant. Moreover, the Court concluded that the additional assessments were correctly imposed and dismissed the appeal.

Conclusion

The Hague District Court’s ruling emphasizes the importance of the actual economic relationship between service providers and recipients in determining VAT deduction rights. Additionally, it highlights that even when EU companies do business with non-EU entities, the right to deduct input VAT depends on whether the service provided generates consideration.

Source: The Hague District Court - Cases SGR 23/5384 and SGR 23/5385