New comments from the tax authorities on the VAT regime applicable to NFTs

On February 14, 2024, the tax authorities published a long-awaited ruling (BOI-RES-TVA-000140 of 14-2-2024), concerning the VAT treatment applicable to three situations involving non-fungible tokens (NFTs).

1. Definition and Clarification of NFTs: On February 14, 2024, the French tax authority published a rescript (BOI-RES-TVA-000140) defining NFTs as unique computer files recorded on a blockchain. They are often used as certificates of ownership for tangible or intangible goods and are distinct from traditional crypto-assets, not benefiting from the VAT exemptions applicable to banking and financial operations.
2. VAT Rules for NFT Transactions: Transactions involving NFTs must follow the standard VAT rules based on the nature of the underlying object or service. The rescript provides three practical examples to illustrate the applicable VAT regime: the creation and sale of digital collectible cards, the creation and sale of digital graphic works, and the financing of video games through the issuance of NFTs.
3. Creation and Sale of Digital Collectible Cards: These transactions are considered services and follow the VAT rules for electronically supplied services, especially if they are carried out largely automatically with minimal human intervention.
4. Digital Graphic Works and NFTs: The creation and sale of digital graphic works associated with NFTs are also considered services. The applicable VAT rate depends on whether the work qualifies as an “intellectual creation” and whether the sale includes the transfer of associated copyright, with possible reduced rates of 10% or the standard rate of 20%.
5. Financing of Video Games through NFTs: Digital items sold before the game’s release are not subject to VAT due to the uncertainty of future consideration. Once the game is launched and the digital items become usable, these transactions are subject to VAT. This rescript aligns with the European Commission’s VAT Committee’s work and anticipates further clarifications with the MiCA regulation, expected to take effect by December 30, 2024.

Source PwC