Unveiling the EU VAT Treatment of Non-Fungible Tokens (NFTs): An Extensive Analysis of the VAT Consequences for NFT Trading

Abstract: Non-fungible tokens (NFTs) have gained significant attention in recent years as a rapidly growing form of crypto assets with unique characteristics. However, existing tax regulations have struggled to keep up with these developments. This thesis addresses the taxation of NFTs within the European Union (EU) and highlights the legal gap in their treatment, given their exclusion from the Markets in Crypto-Assets Regulation (MiCA) and the absence of relevant case law from the Court of Justice of the European Union (CJEU) regarding their value-added tax (VAT) treatment. The study is particularly influenced by the European Commission VAT Committee's Working Paper No.1060, which provides initial considerations on the VAT treatment of NFTs. The thesis explores provisions within the VAT Directive, VAT Implementing Regulation, and CJEU case law to examine potential implications for classifying NFTs. The central focus of this thesis is the classification of NFTs and the assessment of NFT trading within the realm of EU VAT regulations. The findings establish that NFTs are unique digital assets without a distinct monetary function compared to cryptocurrencies. It becomes evident that NFT trading constitutes a taxable transaction occurring between taxable persons for consideration. However, the classification of NFTs for VAT purposes poses a distinct challenge, with discussions encompassing various classifications, such as vouchers, electronically supplied services, and composite supplies. While the VAT Committee's working paper recognizes NFTs as electronically supplied services, alternative perspectives on their classification are explored. Challenges arise regarding the application of place of supply rules due to the virtual nature of NFT transactions and the issue of anonymity, leading to a lack of required evidence as specified in the Implementing Regulation. Therefore, reformulating these rules to align with contemporary technological advancements becomes necessary.