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Britain backs off Bitcoin tax plan

I confess. I just don't get the fascination with Bitcoin.

I don't get people investing real money in made-up money. That was my mindset even before $500 million was lost in the Mt. Gox bankruptcy.

Casascius Bitcoins

But then, I'm still a bit trepidatious about PayPal!

Lee Sheppard nails it in her piece today in Tax Notes:

"Bitcoin is not a currency. Oh, but it's a medium of exchange! It's a store of value! So were cigarettes in World War II. ... Bitcoin is a money transfer system. It's PayPal without a bank account."

And I have the esteemed investor Warren Buffett on my side, too.

"It's not a currency," Buffet told CNBC. "I wouldn't be surprised if it wasn't around in the next 10, 20 years." The reason, said the Oracle of Omaha, is that Bitcoin is being priced off the dollar, which isn't a durable means of exchange. 

To tax and how? I'm not alone in trying to figure out Bitcoin. I'm just glad I'm not in any treasury department tasked with whether and how to tax bitcoins and/or transactions involving them.

Here in the United States, we're still awaiting word from the Internal Revenue Service on its Bitcoin stance.

Across the pond, however, HM Revenue & Customs (HMRC) has reached a decision. Again.

United Kingdom tax officials told that nation's traders last week that HMRC would not impose a 20 percent value-added tax (VAT) on Bitcoin transactions. Also out is the margins tax.

This latest decision is a reversal of HMRC's earlier ruling that classified virtual currencies as gift vouchers. As such, VAT could be charged on Bitcoins' value.

That rankled British businesses, which protested the tax treatment would drive customers to countries that didn't have any levies.

And while bitcoins themselves won't  be taxed, HRMC says that it still will collect tax on any purchases made using the, uh, currency.

"In all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency," the UK tax agency said. "The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place."

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