VAT on sales of skins

It is the Tax Agency’s assessment that Spørger acts as a taxable person when he sells skins, as Spørger runs a financial business. The sale of skins is not VAT exempt according to the VAT Act, section 13, subsection. 1, no. 11, letter e, as skins cannot be regarded as a certificate of entry, cf. the case law of the European Court of Justice, and because the sale of skins based on a natural linguistic understanding cannot be regarded as a financial transaction. It is also finally assessed that Spørger will not be entitled to use the second-hand VAT scheme, as skins are an electronically delivered service.

Questions

Does the Asker act as a taxable person when he sells skins?
If the answer to the first question is yes, the activity of selling Skins will be exempt from VAT pursuant to section 13 (1) of the VAT Act. 1, No. 11?
If the answer to question 2 is no, will the Inquirer be entitled to apply the second-hand VAT scheme, whereby the purchase of skins can be set off against sales?

Reply

Description of the actual conditions

Questioner is XX years old and plays Counter Strike on a private basis. He is not a professional and does not play on teams or in clubs. Nevertheless, over the course of a number of years, he has managed to develop his skills to a high level.

Participation in the game is free. The individual player creates a profile, which also functions as a game account on Steam (steam account), which is a platform developed to organize a number of computer games and networks between the players, etc.

Players can transfer money to their Steam account, which can be used for various purposes, including upgrading, purchasing weapon boxes that contain so-called skins, and various other things. The weapon boxes are rewarded to players as part of the game, but a “key” must be purchased from Steam to open the boxes. The contents of the weapon boxes are not known in advance.

Skins are virtual ornaments that are more or less attractive to players. Since skins are contained in the closed boxes, which require the player to have a level where he can earn rewards, skins are largely traded. This is typically done via Facebook and where mobilepay is used as a means of payment.

Asker has a level where he is rewarded with weapon boxes and via the steam account buys “keys” and thus gets a number of skins. After using the acquired skins for a period of time, some of them are sold via Facebook, which gives a profit of around 10-20%. Similarly, Asks even buys attractive skins via Facebook.

Questioner has an expectation that he will be able to sell for approx. 0.5 million DKK annually, but it is with a very high degree of uncertainty.

On the Danish Gaming Authority’s website, skins are described as follows:

In many computer games you can earn or buy virtual items. It can be elements such as a special color or decoration for a weapon or clothing for one’s figure, but there can also be virtual objects that have a function in the game. For example, a new weapon or an extra life. All this goes by the name of skins.

Questioner has subsequently elaborated on the following:

Questioner started playing Counter Strike Source in 2013. Later, Counter Strike Global Offensive came on the market, which Questioner switched over to 2017. From that point on, skins began to be interesting as a trading item.

In terms of how much Asker plays Counter Strike, it can vary quite a bit, but in the winter months typically 2-3 hours daily. In the summer somewhat less.

Questioner has been selling Skins for about 1.5 years and sells Skins on average about 3 times a week. It is perceived as attractive to change things regularly, and in addition, in a few cases “good deals” can be made with skins that are not for actual use in the game.

The prices at the Skins Spørger seller vary between DKK 100 and DKK 20,000. The typical trades are in the price range of DKK 3-4,000, and it is unusual with trades over DKK 10,000.

Generally, a “public” post is made on Facebook, where anyone can go in and show interest and possibly bid. There may be people who return directly because they have made a good purchase, and are interested in whether there will be more.

Questioner’s opinion and reasoning

Question 1

The VAT Act defines a taxable person as a “legal or natural person who carries on an independent economic activity.

This means that there must be a certain systematic pursuit of a profession in order to obtain income of a certain lasting nature. Private individuals who sell private assets are not considered to be taxable persons.

In a reply to the Tax Committee, reply 677 of 2 September 2020, the Minister of Taxation has stated the following about the sale of skins:

Sales of skins are generally not covered by the second-hand VAT scheme. The second-hand VAT scheme is a special scheme for settling VAT when taxable persons sell second-hand goods. Private individuals who sell their private property without conducting independent economic activity are not considered to be taxable persons. Private individuals’ sales of skins are therefore not covered by the scope of the VAT Act or by the second-hand VAT scheme.

The Ministry of Taxation is not aware of any information that the sale of skins is made by anyone other than private individuals. It is noted, however, that a private individual who runs an independent financial business with the purchase and sale of skins may be covered by the VAT Act, and thus also by the second-hand VAT scheme, if his taxable deliveries exceed DKK 50,000 annually.

For Spørger, participating in counter strike is a hobby that is carried out alongside school and leisure jobs. The purpose of participating in the game is not business, but only serves his private interests.

The income from the sale of skins is expected to significantly exceed the VAT Act’s de minimis limit of DKK 50,000. Nevertheless, these are all skins which Spørger himself has used in the game and which can thus be characterized as private assets, cf. the Minister’s reply. In this connection, we note that it appears that the purchase and sale of skins may be covered by the VAT Act if the income exceeds DKK 50,000 annually. However, this wording does not imply that VAT liability is always incurred if the annual income exceeds the limit. At the same time, this presupposes that an independent financial business is run.

It is our assessment that the Questioner, based on the answer to question 677, does not act as a taxable person. This is income from a private and to a large extent hobby-oriented interest, especially in the case of private “objects”, which Spørger himself has used for a certain period before they are offered for sale via Facebook. Thus, it is irrelevant that the annual income exceeds DKK 50,000.

In his subsequent consultation remarks, received on 20 October 2021, the questioner elaborated on the following:

Question 1 is of significant fundamental importance, which is not least borne out by the development that has taken place in online trading, including in connection with activities in the form of online games and the like. When is it a private interest and when does it change character to form an independent business.

We agree that this must be based on an overall assessment of circumstances, including as mentioned by the Agency, amount, frequency and scope. But in addition, other circumstances in the form of purpose and character must be included in the overall assessment.

From the answer to question 677, the Minister of Taxation takes the premise that “private individuals’ sale of skins is therefore not covered by the scope of the VAT Act or by the second-hand VAT scheme”.

Furthermore, it appears that a private individual may be covered by the VAT Act if the deliveries exceed DKK 50,000 annually.

As mentioned in our request for a binding answer, Spørger is a young man who for some years has cultivated online games as an interest and in that connection has managed to make money from the sale of virtual skins, which he has often bought and used in connection with the game. .

He has at no time intended to use his interest professionally, but sees the income as a result of the fact that he has constantly developed his skills in gaming.

Thus, his gaming activities do not differ significantly from other private individuals who have hobby activities / leisure interests, and where the skills within the interest cause increased income to be obtained over a period of time. It can be, for example, private individuals who buy works of art from unknown artists, use / exhibit these in their private homes and regularly sell the works of art. The sale may partly be driven by the fact that the works have increased in value, and partly be driven by a desire to purchase new works of art.

Such an interest can, of course, lead to the activity changing nature at some point. But as long as there are works of art used for decoration in the private residence and as long as there is no business system in the purchase and sale of works, it is our opinion that the private person does not act as a taxable person.

In the same way, it should be taken into account that Spørger’s trading in skins takes place in connection with his practice of the game, that it is a trade in skins, which Spørger in almost all cases himself uses in connection with his games, and that the extent of acts, is borne solely by the fact that Asker has managed to develop his skills in the game.

The income has a “random” nature and the activity does not have the characteristics that characterize an economic enterprise. Here we are thinking above all of:

A credible budget can not be set for the revenue. Even if the revenue is increasing, a budgeting based on a future rate of increase will not make sense when it is not a matter of fixed customer relationships / fixed buyers, but of sales to other players who bid if there is an attractive appearance. .
The activity does not provide a basis for establishing an actual company with employees, office facilities, etc. It is only the active presence in the game that generates the revenue.
A VAT liability will result in a significant imbalance, as the majority of the purchases of skins that the Inquirer makes must be assumed not to include VAT, cf. the starting point in answer 677. Since the used VAT scheme cannot be applied, this means that the Inquirer will receive a net VAT burden , which is disproportionate to the result of the business.
For Spørger, it is only financially attractive as long as he can maintain games to the current extent, and provided that he is not “overtaken” by other players, who thus become more attractive and can increase the sale of skins, among other things at the expense. of Asks.

Against this background, we maintain that Spørger does not constitute a taxable person when he, as a private person, participates in a game that triggers “random” income in connection with the sale of skins, which in virtually all cases is used by Spørger himself, before a possible sales.

The answer to question 1 should therefore be “yes”

Question 2

If it is assessed that Spørger conducts independent economic activity with the sale of skins, we find it relevant that an assessment is made after the exemption in section 13 (1) of the VAT Act. 1, no. 11, point e.

A skin is a virtual product that is used in connection with a game, but without representing an actual value, in addition to the value determined by the market. Thus, skins potentially and effectively constitute an investment object, where professional players buy skins with a view to reselling at a time when the value and thus the return is higher. These players are not necessarily active players, but of course have in-depth knowledge of the game and the values that different skins represent.

Although Asker does not buy skins as an actual investment item, in reality it is the way it works. He uses his skill to acquire attractive skins, which can later be sold at a profit. That he uses them actively for a certain period of time cannot, in our view, deprive them of their financial character.

It is therefore our assessment that trading in skins can be regarded as a financial activity which is exempt from VAT pursuant to section 13 of the VAT Act.

In his subsequent consultation remarks, received on 20 October 2021, the questioner elaborated on the following:

The Danish Tax Agency recommends that the answer is no to trading in virtual skins constituting a financial transaction, and refers in this connection to the fact that skins are not comparable with shares, participations in companies or bonds.

We basically agree with this. But we must maintain that the activity of buying and selling skins can be considered to have taken place for investment purposes.

The Danish Tax Agency’s proposal to answer question 1 will mean that the trade in skins constitutes an economic activity. At the same time, this means that the actual gaming activities must be disregarded and instead an assessment made of the economy associated with the trade in skins.

Trading in skins can best be compared to trading in virtual currencies, such as bitcoins. The value of a skin is initially determined by the company that provides the skins. However, subsequent increases or decreases in price are borne by other mechanisms over which the “producer” has no influence and which have no relation to the “production price”.

If the activity is seen in isolation from the game itself, it will mostly have the character of buying and selling skins in order to make money by expected fluctuations in prices / prices of skins. Thus, the activity acquires or can acquire a character that does not differ significantly from investment / speculation.

Against this background, we maintain that the answer to question 2 should be ‘yes’.

Question 3

From answer 677, cf. above under question 1, it appears directly that economic activity with the sale of skins may be covered by the VAT Act, and thus also by the second-hand VAT scheme, if the person’s taxable deliveries exceed DKK 50,000 annually.

With the question, we want to confirm that Spørger can apply the used VAT rules, and thus set off purchases made in the sale of skins, and only settle VAT on the profit obtained.

The Danish Tax Agency’s recommendation and justification

Question 1

It is to be confirmed whether Asker acts as a taxable person when he sells skins?

Reasons

It follows from section 3 of the VAT Act that taxable persons can be both legal or natural persons who conduct economic activities.

By a taxable person is meant anyone who independently and regardless of the place carries out economic activity regardless of the purpose or result of the activity in question, see the VAT System Directive, Article 9 (1). 1, 1st paragraph.

By economic activity is meant all kinds of activity as a producer, trader or service provider, including mining and agriculture, as well as activity within liberal and similar professions.

In addition, the decision as to whether in each case it is an economic activity must depend on a concrete assessment of whether the purpose of the activity in question is to “provide income of a certain lasting nature” . In this assessment, all specific circumstances must be taken into account, including the nature of the goods that are utilized, the scope of the customer base and the size of the revenue, cf. EU judgment C-230/94 , Renate Enkler, paragraphs 24 and 26-30.

In cases where an asset because of its character can be used both for commercial and private use, the assessment of whether the purpose of the company is to “provide income on a continuing basis” , a comparison is made between the on the one hand, the circumstances in which the person concerned actually uses the goods and, on the other hand, the circumstances in which a similar economic activity is normally carried on, see the judgment of the European Court of Justice in Case C-263/11, Rēdlihs, paragraph 35.

Economic activity includes not only permanent business activities, but also more occasional financial transactions.

In his justification, the questioner has referred to the Ministry of Taxation’s answer 677 of 2 September 2020 to the Tax Committee, in which the following is stated:

“Questions

Will the Minister explain whether the sale of skins is covered by the second-hand VAT scheme?

Reply:

The Ministry of Taxation is not aware of any information that the sale of skins is made by anyone other than private individuals. It is noted, however, that a private person who runs an independent financial business with the purchase and sale of skins may be covered by the VAT Act, and thus also by the second-hand VAT scheme, if his taxable deliveries exceed DKK 50,000 annually. “

The Ministry of Taxation’s reply 677 was later corrected on 28 September 2021 to the following:

“Questions

Will the Minister explain whether the sale of skins is covered by the second-hand VAT scheme?

Reply

The second-hand VAT scheme is a special scheme for settling VAT that can be used by companies that resell second-hand goods, works of art, collectibles or antiques. It is a prerequisite for the company to be able to apply the scheme that the product is purchased from a company or person who has not had the right to deduct.

Used goods are understood to mean movable objects that can be reused in the present condition or after repair.

Skins are considered to be an electronically delivered service for VAT purposes. This is because the purchase and sale of skins will involve the delivery of digitized products in general.

As electronically supplied services are not covered by the second-hand VAT scheme, skins are not covered by the scheme. “

The change in the Ministry of Taxation’s answer will have an impact on the reasoning in question 3, but will not affect the answer in question 1.

Thus, an assessment will still have to be made of how Spørger can be considered to be running an independent financial business by selling skins.

Based on the information available, Questioner XX is years old and plays Counter Strike on a private basis. He is not a professional and does not play on teams or in clubs.

On that basis, it can thus be concluded that Asker cannot be characterized as an employee in relation to his sale of skins.

In addition, it is stated that Spørger has been selling skins via Facebook for the past 1.5 years. He sells about 3 skins a week and the price can vary between DKK 100 and DKK 20,000, which gives a profit in the range of 10-20 percent. The typical trades are in the price range of DKK 3-4,000, and it is unusual with trades over DKK 10,000. Askers also buy attractive skins via Facebook.

In general, the sale takes place in the way that a “public” notice is made on Facebook, where anyone can go in and show interest and possibly bid. There may be people who return directly because they have made a good purchase in the past, and are interested in whether there will be more. Payment is made via mobilepay.

Questioner has an expectation that he will be able to sell for approx. 0.5 million DKK annually.

Following a specific assessment on the basis of the above information, the Danish Tax Agency is of the opinion that Spørger intends to obtain income of a certain lasting nature by selling skins. We have taken into account the size of the amounts, that the trades are with several private individuals as well as the frequency and scope of the sales.

The applicant is therefore liable for VAT under section 3 of the VAT Act, as he is a taxable natural person who runs an independent economic activity.

The Danish Tax Agency’s comments on Spørger’s consultation comments of 20 October 2021.

Questioner’s consultation remarks do not give rise to a change in the setting.

It should be noted at the outset that Spørger refers to the old version of the Minister of Taxation’s reply 677 of 2 September 2020 and thus not the new version of 28 September 2021. However, it is still the assessment that Spørger can be regarded as a taxable person when selling skins, if it is assessed that Spørger conducts economic activity, cf. section 3 (1) of the VAT Act. 1.

A taxable person means anyone who independently and regardless of the place carries out economic activity regardless of the purpose or result of the activity in question. See VAT System Directive, Article 9, para. 1, 1st paragraph.

Based on the available information, the Danish Tax Agency assesses that Spørger is a taxable person. Please refer to the justification above.

Setting

The Danish Tax Agency recommends that question 1 be answered with “Yes”.

Question 2

We would like to confirm if the answer to question 1 is yes, that the activity of selling Skins will be exempt from VAT pursuant to section 13 (1) of the VAT Act. 1, No. 11?

Reasons

VAT Act § 4, para. 1, stipulates that tax is paid on goods and services provided for consideration in this country as part of economic activity.

The questioner’s services, which have a place of delivery in this country, are thus in principle subject to VAT, cf. also the answer to question 1.

Section 13 of the VAT Act exempts a number of services from tax. Pursuant to section 13 (1) of the VAT Act 1, no. 11, letter e, which implements Article 135, para. 1 (e), transactions, including negotiations, in connection with securities are exempt from VAT.

The remuneration associated with transactions, including negotiations, in connection with securities must thus not be subject to VAT.

The securities that are covered by the VAT exemption in ML § 13 , para. 1, no. 11, letter e, is for example:

Bonds
Mortgage deeds
Equities
Partnership shares and other shares in companies as well
Financial contracts such as futures, options and futures.

The list is not exhaustive.

In relation to Article 135 (1) of the VAT System Directive 1 (f), the following securities are covered by the exemption:

Equities
Shares in companies or other associations
Bonds
And other certificates of entry, other than product representations and those referred to in Article 15 (1) Rights referred to in paragraph 2.

The transactions covered by the exemption provision are, by their nature, financial transactions. The “other certificates of admission” covered by the exemption must be comparable to the certificates of admission specifically mentioned. See the judgment of the European Court of Justice in Case C-461/12, Granton Advertising BV.

As skins are not comparable with either shares, participations in companies or bonds, they cannot, based on the above, be regarded as securities covered by section 13 (1) of the VAT Act. 1, no. 11 point e.

The questioner’s sale of skins will thus not be covered by the VAT exemption in section 13 (1) of the VAT Act. 1, no. 11, point e.

The Danish Tax Agency’s comments on Spørger’s consultation comments of 20 October 2021.

Questioner’s consultation remarks do not give rise to a change in the setting.

It is still the Tax Agency’s assessment that skins do not fall under the definition “other proof of entry”. In addition, the sale of skins cannot, from a natural linguistic understanding, be regarded as a financial transaction.

The sale of skins is thus not covered by the VAT exemption in section 13 (1) of the VAT Act. 1, no. 11 letter e, cf. the justification above.

Setting

The Danish Tax Agency recommends that question 2 be answered with “No”.

Question 3

It is desired to confirm, if the answer to question 2 is no, that the Inquirer will be entitled to apply the second-hand VAT scheme, whereby the purchase of skins can be set off against sales?

Reasons

The second-hand VAT scheme is a special scheme for settling VAT that can be used by companies that resell second-hand goods, works of art, collectibles or antiques.

The purpose of the used VAT scheme is to avoid double collection of VAT in cases where a VAT-liable reseller buys a second-hand item from a person who is not liable for VAT and where the reseller has not obtained a VAT deduction at the time of purchase.

Used goods within the meaning of the second-hand VAT scheme are understood to mean movable objects that can be reused in the present condition or after repair, cf. section 69 (1) of the VAT Act. 3

In the Minister of Taxation’s reply 677 of 28 September 2021, the following has been stated:

“Questions

Will the Minister explain whether the sale of skins is covered by the second-hand VAT scheme?

Reply

Used goods are understood to mean movable objects that can be reused in the present condition or after repair.

Skins are considered to be an electronically delivered service for VAT purposes. This is because the purchase and sale of skins will involve the delivery of digitized products in general.

As electronically supplied services are not covered by the second-hand VAT scheme, skins are not covered by the scheme. “

As stated in the Minister of Taxation’s reply, the Questioner’s sale of skins cannot be considered covered by the second-hand VAT scheme, as this is an electronically delivered service.

On the basis of the above, it is thus the opinion of the Danish Tax Agency that Spørger is not entitled to apply the second-hand VAT scheme in the present case.

Setting

The Danish Tax Agency recommends that question 3 be answered with “No”.

The Tax Council’s decision and justification

The Tax Council agrees with the Danish Tax Agency’s recommendation and justification.

Legal basis, preparatory work and practice

Question 1

Legal basis

VAT Act § 3

PCS. Taxable persons are legal or natural persons who are self-employed

VAT Act § 69

Companies that purchase second-hand goods, works of art, collectibles or antiques for resale, etc., may, upon resale, tax the second-hand goods, etc. in question in accordance with the rules in this chapter. It is a prerequisite for applying these rules that the used goods etc. have been delivered to the company in this country or from another Community country of

3) a taxable person when the supply is exempt from tax pursuant to section 13 or pursuant to similar rules in another Community country;

Article 9 of the VAT Systems Directive

PCS. 1. ‘Taxable person’ means any person who independently and independently carries out economic activities, whatever the purpose or result of the activity in question. 16

‘Economic activity’ means any activity as a producer, trader or service provider, including mining and agriculture, as well as activities in the liberal and similar professions. Economic activity means in particular the exploitation of tangible or intangible goods for the purpose of obtaining income of a certain lasting nature

Practice

C-230/94, Renate Enkler

Purchase and rental of caravan. The car was primarily used privately by the owner himself. In addition, there was some letting to others, but the letting was done mainly to the spouse. It was for the national court to assess all the specific circumstances.

The Minister of Taxation’s answer 677 of 28 September 2021:

Questions:

Will the Minister explain whether the sale of skins is covered by the second-hand VAT scheme?

Reply:

Used goods are understood to mean movable objects that can be reused in the present condition or after repair.

Skins are considered to be an electronically delivered service for VAT purposes. This is because the purchase and sale of skins will involve the delivery of digitized products in general.

As electronically supplied services are not covered by the second-hand VAT scheme, skins are not covered by the scheme.

The legal guide

DA3.1.4.1 What is economic activity?

Contents

This section describes what is meant by the concept of economic activity.

The section contains:

Rule
Overview of judgments, rulings, decisions, SKM announcements and so on.

Also see

See the following sections for more information on VAT liability:

section DA3.1.4.2 on revenue of a certain permanent nature
section DA3.1.4.2.1 on the exploitation of tangible or intangible goods, e.g. building plots
section DA3.1.4.3 on preparatory actions and winding up of business
section DA3.1.4.4 on associations
section DA4.1 on deliveries for consideration ML § 4 , para. 1 and 2
section DA5.9.4 on VAT liability on delivery of new buildings
section DA5.9.5 on VAT liability on delivery of building land.

Rule

By economic activity is meant all kinds of activity as a producer, trader or service provider, including mining and agriculture, as well as activity within liberal and similar professions. Economic activity is understood in particular as the utilization of tangible or intangible goods for the purpose of obtaining income of a certain lasting nature. See VAT System Directive, Article 9, para. 1, 2nd paragraph.

Economic activity includes not only permanent business activities, but also more occasional financial transactions. See the preparatory work (Bill 124, parliamentary year 1993-94) for ML § 3 . However, as mentioned, there must be income of a certain permanent nature. See the discussion of the judgment in Case C-230/94 , Renate Enkler, in section DA3.1.4.2.2 .

Article 9 (1) of the VAT Systems Directive The second subparagraph of paragraph 1 shall be construed to mean that the term “economic activity” in the provision also includes a form of activity which, although only occasionally, falls within the general definition of the term in the first sentence of the provision and which is a taxable person who, in addition, pursues another form of economic activity in a lasting manner. See the judgment in Case C-62/12 , Galin Kostov.

If, on the other hand, the supplier acts as a private individual, the delivery is therefore not subject to VAT.

Economic activity can only be carried out independently. Employees and other persons are therefore not covered by the VAT rules to the extent that they are liable to their employer by an employment contract or by another legal relationship which creates an employee-employer relationship with regard to working and pay conditions and the employer’s liability. See Article 9 (1) of the VAT Systems Directive. 1 and Article 10.

DA3.1.4.2.1 Exploitation of tangible or intangible goods

Contents

This section deals with what is meant by the concept of exploitation of tangible or intangible goods.

The section contains:

Rule
Control signal for photovoltaic systems, household wind turbines, etc.
Overview of judgments, rulings, decisions, SKM announcements, etc.

Also see

section DA3.1.4.2.2 on hobby activities
section DA3.1.4.2.3 on agricultural support schemes
section DA3.1.4.2.4 on financial activities
section DA3.1.4.4 on associations
section DA5.9.4 on VAT liability on delivery of new buildings
section DA5.9.5 on VAT liability on delivery of building land.

Rule

Exploitation of tangible or intangible goods for the purpose of obtaining income of a certain lasting nature constitutes economic activity. See VAT System Directive , Article 9, para. 1, 2nd paragraph.

Intangible goods are, for example, copyrights, patent rights, licensing rights, the right to trademarks, common marks and designs and other similar rights.

For the receipt of free internet services in exchange for consent to use personal data, see the discussion of the VAT Committee’s guideline in DA4.1.2 .

(…)

Companies other than companies relating to photovoltaic systems and wind turbines

The change that follows from the National Tax Tribunal’s decisions SKM2017.266.LSR and SKM2017.267.LSR concerning the calculation of withholding tax , also applies to VAT-registered companies other than photovoltaic systems and wind turbines. The change also applies to other VAT-registered companies, where a calculation method has been established for the withdrawal VAT, which is different from a calculation on the basis of the actual useful life.

The change includes the calculation of withdrawal VAT for both goods and services. “

Note

In order for a supply of goods or services to be subject to VAT, it is a condition that the supply is made for consideration by a taxable person who trades in this property. See Article 2 (1) of the VAT Systems Directive. 1 (a) and (c). If, on the other hand, the supplier acts as a private individual, the delivery is therefore not subject to VAT.

DA3.1.4.2.2 Hobby activities

Contents

This section describes the VAT treatment of hobby business.

The section contains:

Definition: Hobby business
Hobby business can be financial business
Guidelines
Operation of racing stables and stud farm
Overview of judgments, rulings, decisions, SKM announcements, etc.

Definition: Hobby business

Hobby business is a term used in connection with income tax.

Hobby business is characterized by the fact that the business is typically an expression of a personal interest (hobby), and where the owner often participates in the business himself. The private purposes are thus crucial rather than the economic benefits.

These private purposes can be, for example:

educational and residential purposes
sports interests such as horseback riding, horse racing, sailing, etc.
animal husbandry such as ponies, dogs, rabbits, chickens and the like.

Read more about the income tax treatment of hobby business in section CC1.1.1 .

Hobby business can be financial business

Only self-employed persons can be considered taxable persons.

The definition of what kind of business is considered an economic activity is directly regulated by EU law rules and the European Court of Justice’s interpretation of these rules. An independent VAT law assessment must therefore be made of whether the company is an economic company or not. The VAT law delimitation of an economic activity does not always coincide with the tax law assessment of whether the activity is commercial. See TfS1997, 639DEP.

It is therefore a concrete assessment whether a given “hobby business” constitutes an economic business or not.

Among the circumstances to be assessed in determining whether a person has exploited a good in such a way that his business is to be regarded as an economic activity is the nature of the good in question. See the judgment of the European Court of Justice in Case C-230/94 , Renate Enkler.

The fact that a good is suitable for an exclusively economic exploitation is usually sufficient for its owner to be regarded as exploiting it for the purpose of economic activity and therefore for the purpose of providing income of a certain lasting nature. If, on the other hand, due to its nature, a good can be used for both commercial and private use, an assessment must be made of all the circumstances surrounding its exploitation. See the judgment of the European Court of Justice in Case C-230/94 , Renate Enkler.

A possible approach in determining whether the company in question is an economic activity within the meaning of the VAT Act may be a comparison between:

the circumstances in which the company actually uses the goods,

and

the circumstances in which a similar economic activity is normally carried on.

See the judgment of the European Court of Justice in Case C-230/94 , Renate Enkler.

The period in which the good is actually utilized, the scope of the customer base and the size of the revenue can also, together with other specific circumstances, be taken into account in the assessment. See the judgment of the European Court of Justice in Case C-230/94 , Renate Enkler.

Guidelines

A company that is considered a hobby company for tax purposes may, depending on the circumstances, be an economic company within the meaning of the VAT Act.

The decision as to whether there is an economic activity in the field of VAT law is made on the basis of an overall, concrete assessment of the enterprise, in which all relevant factors must be included.

The relevant factors that have been emphasized in practice include:

whether the scope of the business is of a certain size
whether the company is run sufficiently intensively / seriously
whether the mode of operation is customary for undertakings of the type in question
whether there are other than business purposes of the business
whether the owner is barred from using the company’s assets for private use
whether the owner has special professional prerequisites (eg relevant education) to run the business in question
whether the company has a natural connection with the owner’s possibly. other lucrative professions
whether the company lives up to the professional standard applicable to the profession in question
whether the company will be able to be sold to a third party, ie. about it despite any. hitherto deficit in the eyes of third parties has a potential earning capacity, or whether it can not be driven at all detached from the property, person or the institution in which it has hitherto been operated.

None of these criteria is in itself decisive for the assessment of whether it is an economic activity within the meaning of the VAT Act.

(…)

Also see

See the following sections for more information on taxable persons and economic activity:

section DA3.1.2 on the definition of a person liable for VAT
section DA3.1.3 on self-employment
section DA3.1.4.2 on revenue of a certain permanent nature.

Question 2

Legal basis

VAT Act § 4

PCS. 1. Tax is paid on goods and services provided for consideration 16 in this country. By delivery of an item17 is meant the transfer of the right as the owner to dispose of a material good. Delivery of a service18 includes any other delivery

VAT Act § 13, para. 1

The following goods and services are exempt from tax:

11) The following financial activities

e) Transactions, including negotiations, with the exception of custody and administration, in connection with securities, other than commodity representations and documents conferring certain rights, including rights of use, over immovable property, and units and shares, when their possession legally or effectively secures rights as owner or user of a property or part of a property

Practice

The legal guide

DA5.11.8.2 Definition: Securities

Contents

This section provides an insight into the definition of securities as well as the transactions that take place in connection with securities.

The section contains:

Examples of securities covered by the VAT exemption
Examples of securities that are not covered by the VAT exemption
Guideline from the VAT Committee (emission quotas)
Overview of judgments, rulings, decisions, SKM announcements, etc.

Examples of securities covered by the VAT exemption

Securities that are covered by the VAT exemption in ML § 13 , para. 1, no. 11, letter e, is for example:

Bonds
Mortgage deeds
Equities
Partnership shares and other shares in companies as well
Financial contracts such as futures, options and futures.

This list is not exhaustive.

The text of the Directive

Article 135 (1) of the VAT Systems Directive 1 (f) contains the following list of securities covered by the exemption:

Equities
Shares in companies or other associations
Bonds
And other certificates of entry, other than product representations and those referred to in Article 15 (1) Rights referred to in paragraph 2.

The transactions covered by the exemption clause are, by their nature, financial transactions. The “other certificates of admission” covered by the exemption must be comparable to the certificates of admission specifically mentioned. See the judgment of the European Court of Justice in Case C-461/12 , Granton Advertising BV.

Examples of securities that are not covered by the VAT exemption

The following securities are not covered by the VAT exemption in ML § 13 , para. 1 (11) (e):

Item representations
Documents conferring certain rights, including rights of use, over real property, as well as units and shares, when the possession thereof legally or actually secures rights as owner or user over a real property or part of a real property. For a description of the practice, see “Certain rights over real estate are equated with delivery” in section DA5.9.3 .

Item representations

In the light of the terms used in the various language versions of the VAT System Directive and the judgment of the European Court of Justice in Case C-461/12 , Granton Advertising BV, a product representative within the meaning of the provision must be understood as an access certificate / security entitling the holder to redemption the certificate / paper to be handed over an item on the terms set out in the certificate / paper. In other words, a commodity representative is a security that makes it possible to transfer the legal ownership of a commodity (a chattel) by entering into an agreement on the transfer of the security instead of entering into an agreement on the transfer of the commodity itself. See SKM2016.449.SR .

Guideline from the VAT Committee (emission quotas)

The VAT Committee unanimously agrees that the issue of emission allowances (consisting of any entity recognized as complying with the requirements of Directive 2003/87 / EC (Emissions Trading Scheme)) is defined as financial instruments in Directive 2014/65 / EU on financial markets instruments and amending Directive 2002/92 / EC and Directive 2011/61 / EU (MiFID II), are not relevant to the VAT treatment of such quotas already established in the previous guidelines WP 480 and WP 678. In particular, the VAT Committee unanimously that the fact that the quotas in the context of MiFID II are classified as financial instruments does not mean that the exemptions in Article 135 (1) of the VAT Systems Directive 1, for certain financial transactions shall apply.

The Danish Tax Agency agrees with the guideline.

See Guideline WP 910 from the VAT Committee, which was adopted on the basis of discussions at the 107th meeting of the Committee.

For the VAT Committee and guidelines , see section DA1.4 .

Question 3

Practice

The Ministry of Taxation’s answer 677 of 28 September 2021:

Questions:

Will the Minister explain whether the sale of skins is covered by the second-hand VAT scheme?

Reply:

Used goods are understood to mean movable objects that can be reused in the present condition or after repair.

Skins are considered to be an electronically delivered service for VAT purposes. This is because the purchase and sale of skins will involve the delivery of digitized products in general.

DA18.1 Briefly about the second-hand VAT scheme

The purpose of the second-hand VAT scheme is to avoid double collection of VAT.

If a VAT-liable reseller buys a used item from a person who is not liable for VAT (eg a private individual or a VAT-exempt company), the reseller has not obtained a VAT deduction on the purchase.

It is not possible to deduct the VAT that was originally paid. The previous owner can also not charge VAT in connection with the sale to the reseller.

According to the general VAT rules, a reseller subject to VAT must collect VAT on all the consideration he receives for the item at the resale, regardless of whether the reseller has obtained a VAT deduction on the purchase or not.

The general VAT rules mean that VAT can be paid several times for the same item.

By using the used VAT scheme, the reseller can avoid such double taxation. The second-hand VAT scheme allows the seller to calculate VAT only on the profit (ie the profit) instead of on the entire sales price. See section DA18.4 .

When selling used passenger motor vehicles, the seller is given the opportunity to make a calculated VAT deduction, even if no VAT has been charged in connection with the purchase. See section DA18.5 .

The VAT scheme was introduced on 1 July 1994. On 1 January 1995, some adjustments were made to the types of purchases that could be covered by the scheme.

The rules on the second-hand VAT scheme are found in ML §§ 69 -71 , which implement Articles 311-343 of the VAT System Directive.

Note

The second-hand VAT scheme is voluntary. Used goods can therefore also be sold in accordance with the general rules of the VAT Act. The reseller must, at the latest in connection with the issuance of an invoice, state whether the individual item is sold in accordance with the used VAT rules. See section DA18.4.4 on the possibility of applying the general rules of the VAT Act when a second-hand product has been assigned to the second-hand VAT scheme.

Source: skat.dk

Exemption

VAT on sales of skins

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