Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
Domestic Developments
North Carolina. On July 14, 2015, the North Carolina Senate advanced a legislative bill designed to provide greater regulatory oversight for virtual currency businesses in the state. The bill, SB 680, was approved by the Senate Commerce Committee. The North Carolina House of Representatives passed the bill in May by an overwhelming majority vote of 117-1. Our previous coverage of the North Carolina bill can be found here.
SB 680 would amend North Carolina’s Money Transmitters Act to explicitly apply to virtual currency businesses. The previous version of the act applied to businesses that received monetary value for transmission, and likely already encompassed some virtual currency activity. The bill would amend the act to explicitly impose a license requirement on businesses that maintain “control of virtual currency on behalf of others.” The bill also provides an exemption for virtual currency transactions conducted by a bona fide agent of the payee.
In addition to the license requirement, the bill would require businesses that engage in money transmission to maintain a minimum net worth of $250,000, and to post a surety bond. The base amount of the surety bond is $150,000 for money transmission volumes of no more than $1,000,000. The required surety bond amount then increases as the money transmission volume increases, and a business must supplement its original payment accordingly.
New Hampshire. The Governor of New Hampshire signed HB 666 on July 13, 2015, a bill that amends the state’s laws regarding the licensing of money transmitters. The amendments take effect on January 1, 2016. The amended law would require a business to obtain a license if it receives “convertible virtual currency” for transmission to another location. The bill defines “convertible virtual currency” as:
a digital representation of value that (a) can be a medium of exchange, a unit of account, and/or a store of value; (b) has an equivalent value in real currency or acts as a substitute for real currency; (c) may be centralized or decentralized; and (d) can be exchanged for currency or other convertible virtual currency.
During the House hearings in April, one speaker noted that this definition could potentially be read to encompass currencies used in online gaming. Games such as World of Warcraft involve the exchange of currency within the game, include online accounts for storing game currency, and game currency is frequently sold for “equivalent value in real currency” on Ebay.
At the same House hearings, a banking department official clarified the distinction between HB 666 and another pending New Hampshire bill, HB 356, which would amend the same money transmission law. The banking department official stated that while HB 666 would ensure that the state’s banking department could regulate third party entities engaging in virtual currency transmission, HB 356 would clarify that the department is not responsible for regulating the use of virtual currency. The bill would amend the money transmission law to explicitly exempt persons using private virtual currencies for internet commerce from the licensing requirement. However, HB 356 is still pending in the New Hampshire House Commerce and Consumer Affairs Committee.
International Developments
Europe. In an opinion document published on July 16, 2015, the Advocate General of the European Court of Justice urged the Court to exempt bitcoin operations from Value Added Tax (VAT). Advocate General Juliane Kokott argued that bitcoin purchases and sales should be exempt because while it is not legal tender, bitcoin is nevertheless a form of money. In support of her argument, Kokott cited existing exemptions for currency and money transactions in Europe’s VAT directive.
The Advocate General gave her legal opinion in a pending case originally brought before the Court in June. At that time, Sweden asked the European Court of Justice to rule on whether cryptocurrency exchanges are liable for VAT on fees they charge for their services. The appeal came from Swedish tax authorities after a Swedish court ruled that bitcoin transactions in the country would be exempt from VAT.
A final decision from the European Court of Justice could mean changes to VAT laws in EU member countries, and may lead the EU to broadly pass legislation on the applicability of VAT to cryptocurrency exchanges. Currently, many EU states exempt bitcoin from VAT. Estonia, on the other hand, decided to apply VAT to the full amount of bitcoin trades, not just the profit made in the exchange.
Russia. President Putin issued his first statements regarding digital currency in Russia during an educational program on Russian TV. His statements follow in the wake of a proposed bill that would ban the use of digital currency in the country. In the broadcast, President Putin applauded the Bank of Russia’s stance against a complete ban against digital currencies, but expressed concern over the fact that bitcoins are “backed by nothing.” President Putin’s comments are part of a steady stream of statements from government officials since the draft bill was introduced.