Toon Hasselman
by Toon Hasselman
NFTs are hot. Why? I truly don’t know, but I accept the fact that people are creating them and selling them and others are buying and selling them on digital platforms. Normally, they are paid for in cryptocurrency. heir prices are volatile, so they are subject to speculation.
Trade in NFTs is likely to be subject to the levy of indirect taxes. However, before lifting the tax veil, we need to provide some background on what an NFT is.
NFTs are non-fungible tokens. They are a type of cryptographic token that lives on the blockchain and are used to represent digital assets. Specifically, NFTs provide a way to prove ownership and authenticity of a digital asset.
Fungible items are mutually exchangeable, e.g. one could change one bitcoin for a different bitcoin, and still have the same thing – one bitcoin. Non-fungible means the tokens cannot be interchanged with one another. This is because such a token represents a digital asset like an artwork.
The blockchain is a distributed digital ledger, meaning that the data is stored on many computers at the same time. The Ethereum network, where most NFTs live, has 8,218 storage locations. To successfully corrupt the network, at least half of these locations would need to be interfered with, which makes the blockchain very secure.
In order for the NFT to be a taxable supply, the seller/creator must be a taxable person. If a person creates and sells one NFT, this likely wouldn’t be considered a taxable supply. However, if an individual repeatedly creates and sells NFTs, there very well may be tax implications. If a taxable person sells NFTs, does the sale constitute a supply of goods or of services? Shooting from the hip, I would say it is supply of a service. If it is supply of a service, where is this supply taxable? This question becomes more complicated when determining if it a B2B or B2C supply, and if the latter, whether the supply of a digital service is always taxable if the consumer is a resident. One also must recognise that in the digital world we are dealing with digital nomads, both sellers and buyers, so where are they established/resident? One also needs to consider if the creation qualifies as a work of art, perhaps exempt or taxable at a lower rate. The issue we are faced with is that the market is fluid and global, with indirect tax rules being different nearly everywhere.
Then there is the secondary market to consider, i.e. the market where traders are buying and selling. Professional traders are likely to be taxable persons, but private individuals may act in the capacity of investor (like buying/holding shares), and are considered non-taxable persons.
And can NFTs be seen as used goods to avoid taxing them fully when resold by a taxable person after being bought from a non-taxable person?
In follow up to our discussions at the GGI World Conference in Montréal, we look forward to continued conversations with you on these issues.
Toon Hasselman is an experienced (30 years) high level VAT and Customs Specialist to both national and international companies. He provides simple and practical solutions, quick ‘outside-the-box’ alternatives if necessary, and promotes a no-nonsense approach with a conclusive solution at fair cost. Toon is also the Global Vice Chair of the GGI Indirect Taxes Practice Group. Contact Toon.
EJP Financial Astronauts are auditors, advisers, and challengers. Their team of 55 consists of auditors, accountants and international tax lawyers that have a wide range of expertise. Their main fields of expertise are Dutch corporate and personal income tax, international taxation, Dutch royalty, interest and dividend withholding tax, estate planning, and wage tax. They have an AFM licence to perform audits for the larger mid-sized companies.
GGI member firmEJP Financial Astronauts‘s-Hertogenbosch, The NetherlandsT: +31 73 850 72 80
Auditing & Accounting, Corporate Finance, Tax