Non-fungible tokens (NFT) are one of the hottest topics in the cryptocurrency field right now. The publication issued by FTA in June 2019 does not (yet) contain any specific regulations regarding VAT on the trade of NFT tokens. However, it should be expected that in the background of transactions related to blockchain technology or, more broadly, distributed ledger technology, VAT taxation of such transactions may become a fact.
Due to the steadily growing popularity of non-fungible tokens (NFT), the NFT sector has recently experienced enormous growth. It is significant that many NFT token holders are unaware of the issues related to VAT on such assets.
NFTs are a type of digital cryptographic tokens that exist only once in a blockchain and never duplicate (unlike Bitcoin, Ethereum and other tokens that are issued in more than one equal unit). This means that they are a unique and non-exchangeable digital asset. Due to their uniqueness, NFT assets may reflect different types of assets from the physical world on a blockchain. Examples include artwork, music, trading cards. It is also more and more popular to incorporate rights to diamonds or gold bars into NFT tokens in such a way that the indicated assets find their digital record on the blockchain. In the case of digital content, NFTs are often synchronized with a license right to use the underlying intellectual property. From a civil law perspective, NFTs that are linked to digital content or physical objects are therefore usually considered to be absolute, property-like rights (BCP Class 3).
When it comes to VAT taxation of transactions related to NFT tokens, it should be noted that in the current FTA practice published in mid-2019 regarding VAT on transactions related to the broadly understood blockchain technology, there are no specific provisions regarding NFT. At this point, it should be noted that the general approach adopted in the current VAT practice, consisting in distinguishing 3 basic types of digital tokens, does not apply to NFT due to their unique characteristics. Taking into account the above-mentioned comments, it should be stated that the current position of the FTA in the field of taxation of transactions with NFT tokens is still not settled. Additionally, it seems possible that in the future the FTA may conduct a case-by-case assessment due to the uniqueness of NFT tokens.
Taking into account all the above-mentioned circumstances, from a legal point of view, there are fundamental questions related to VAT regarding the issuance, sale and purchase of NFT tokens:
In our opinion, many owners, investors and traders seem to be completely unaware of the above-mentioned issues or simply ignore the potential consequences of VAT, despite the applicable criminal law in this regard. A further complicating factor that appears when trading via platforms such as OpenSea is that buyers and / or sellers cannot identify each other, making it virtually impossible to prove the place of supply of digital content. This could create a potential risk that Swiss sellers could be liable to pay 7.7% of Swiss VAT on such transactions, but could also create a VAT liability abroad if the sale was actually made to a foreign buyer.
Eberhard Advisory is at your disposal to assist in the analysis of the above-mentioned aspects of VAT and we look forward to hearing from you.
