Several countries are implementing rules or are making decisions on the VAT treatment of sales of ‘virtual products’. For example payments for ‘skins’ in online computer games or for NFT’s.
Some examples of earlier posts on our website:
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The European Parliament has also raised questions about this.
European Parliament – Question from Morten Løkkegaard (HERE)
Topic: EU VAT rules for virtual products (skins) in video games and non-fungible tokens (NFTs) – the risk of losing European industry due to outdated VAT rules
Date: 07.02.2023
“E-sport is a fast growing sector and important part of life for many young Europeans. In many video games, users purchase, sell or trade virtual accessories and decorative items for their online characters, also called skins, in exchange for virtual coins or real currency.
Unfortunately, some young gamers are subject to unreasonable taxes when selling these virtual accessories online. On several occasions in Denmark, users have been obliged to pay value added tax (VAT) for both the accumulated value of the skins and the profit they gain when they sell them. This is different from the sale of used items in real life, where VAT is only payable for the profit made. According to the Danish tax authorities; the reason is that virtual accessories, such as skins, are considered a service and not an item under EU tax law. This might also have consequences for non-fungible tokens (NFTs) in the future.
1. Why does current VAT legislation differentiate between virtual items and real physical items when these are sold?
2. How could current VAT rules affect the short- and long-term market for non-fungible tokens in the EU?
3. What solutions would the Commission consider for updating EU legislation to ensure fairness and similar rules for virtual and physical items, including NFTs?
Answer given by Mr Gentiloni on behalf of the European Commission (HERE)
Date: 16.03.2023
“The Value Added Tax (VAT) Directive[1] subjects to VAT the supply of goods and services for consideration within the territory of a Member State by a taxable person acting as such[2].
A supply of goods[3] means the transfer of the right to dispose of tangible property as owner and a supply of services means any transaction which does not constitute a supply of goods[4].
In principle, the sale or trade of virtual items in online games, inter alia in a game or via a code, in exchange for virtual coins or real currency is a supply of services to be taxed in the Member State of the customer.
The optional special scheme that applies to the supply of second-hand goods was introduced to account for the specificities of taxable dealers trading in goods and thus cannot cover services such as those in question.
However, taxable persons may benefit from the special scheme for small enterprises and, under its conditions, be exempt from VAT obligations for supplies of these services. This special scheme was recently updated[5], and new rules will come into effect in 2025.
The Commission considers that the current rules respect the principle of fiscal neutrality. Their wider application to non-fungible tokens will be discussed in the VAT Committee with a view to providing guidance to Member States to ensure a uniform application of existing EU VAT rules.”
[1] Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT[2] Article 2(1)(a) and (c).
[3] Article 14.
[4] Article 24.
[5] Council Directive 2020/285 of 18 February 2020
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