The German Ministry of Finance has issued an official statement recognizing the virtual currency Bitcoin as "Rechnungseinheiten," a legal designation that translates to "units of account" — more than Monopoly money, but not quite currency. This type of accounting unit, which also covers regional currencies, is also referred to as "artificial currency" or "side payments." (Think barter clubs or Disney dollars.)
The announcement came in response to a direct question from a member of the German parliament Bundestag. But contrary to press reports, this is not a new position. It is an affirmation of a previous ruling by the Federal Financial Supervisory Authority, also known as BaFin, a body within the Ministry of Finance.
The designation means that sales of Bitcoin are subject to the value-added sales tax, and any profit made from the sale of Bitcoin should be taxed as income. According to experts quoted in the German media, the sales tax should only apply to commercial transactions, not private transactions between individuals. Some reports said the ruling represents the first time a country has taken an official stance on Bitcoin, which is incorrect. While it is not as clear-cut as the German ruling, the US Treasury Department issued an official opinion back in March.
The most interesting aspect of the German ruling may be the consequences for the rest of the EU
The most interesting aspect of the German ruling may be the consequences for the rest of the EU. The designation means that any exchange that wants to sell Bitcoin in Germany knows exactly what it needs to do: get a license from BaFin under Article 32 Kreditwesengesetz. Once an exchange is licensed in Germany, it would be allowed to operate anywhere in the EU — a stark contrast from the US, which requires a federal registration in addition to separate licenses from the states.
One German bank, Fidor Bank, has already applied for a license to operate a Bitcoin exchange. The current leading exchange, Tokyo-based Mt. Gox, has recently been struggling with technical and legal challenges. Perhaps the next company to dominate the market will come out of Berlin.