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The ruling comes after a Swedish court referred a case to the European Court of Justice (ECJ).
There had been fears that the court might rule that bitcoin exchanges should have to pay value-added tax (VAT), pushing up the price of bitcoin in Europe.
The court could have even ruled that bitcoin itself should be subject to tax (not just exchanges) - which would have entangled bitcoin businesses in significant new red tape.
But the court ruled that bitcoin exchanges "are exempt from VAT under the provision concerning transactions relating to currency, bank notes and coins used as legal tender.'' It's a boost for bitcoin as it attempts to build legitimacy as a viable alternative currency.
An advocate general - a kind of legal advisor to the ECJ - had said in a legal opinion that bitcoin should not be taxed. It recommended that Europe "keep payments with bitcoin out of scope of VAT as bitcoin can be considered a 'pure payment system,'" tax lawyer Roger van de Berg told Business Insider.
The ECJ had been asked to clarify two questions: First, whether VAT applies to bitcoin; and second, if it does, whether an exemption should exist.
This story is developing...