BDO Indirect Tax News

France - VAT treatment of NFTS clarified

The French tax authorities released a public ruling on 14 February 2024 in which they clarify the VAT treatment of transactions using nonfungible tokens (NFTs). The ruling states that the VAT rules applying to NFTs will be based on the general VAT rules applicable to the underlying transaction as if an NFT was not involved and provides several useful examples.

NFTs are unique computer files that are created and stored on a digital register for tracking block chain transactions. Although NFTs can be used in various situations, they typically constitute digital certificates demonstrating ownership of an underlying tangible or intangible asset, such as art, music, videos, etc.
The ruling clearly establishes that NFTs do not qualify as a currency token, utility token or security token, the three main categories of tokens identified by the FTA. Therefore, NFTs do not fall within the scope of the VAT exemption applicable to bank and financial transactions in article 261 of the French Tax Code.

The ruling looks at several types of NFTs:
  • Creation and sale of digital collection cards associated with NFTs related to tangible artwork;
  • Creation and sale of digital graphic works associated with NFTs considered to be a supply of service; and
  • The issuance of NFTs to finance video game development. Such NFTs would only be VAT taxable (as a service) when the video game is put into use.
If the issuance of the digital cards is automated, thus requiring only minimal human intervention, it would be classified as a digital service. In this case, the general VAT rules would apply, and the supply of digital services would be VAT taxable in the country where the recipient is established.

If the NFT is related to tangible artwork, it may benefit from a reduced VAT rate of 5.5%, provided the underlying transaction falls within the definition of tangible artwork. Digital artwork also may be eligible to benefit from a reduced VAT rate of 10% if it can be classified as an “intellectual and creative work” under the French intellectual property code and involves the transfer of the associated copyrights. If neither of these classifications apply, the standard 20% VAT rate will apply.

The ruling acknowledges that France does not have specific VAT rules that apply to NFTs but the following situations should be addressed:
  • The VAT treatment of NFTs functioning as certificates of ownership is based on the standard VAT treatment of the underlying transactions (i.e., as if NFTs were not involved).
  • NFTs do not correspond to the three main categories of crypto assets (i.e., currency tokens, utility tokens and security tokens) because they are indivisible and nonfungible; thus, transactions relating to NFTs do not fall within the scope of banking or financial transactions that are exempt from VAT.
  • NFTs can be considered a supply of services or even a supply of digital services when the issuance of the NFTs is largely automated.
  • NFTs can benefit from a reduced VAT rate if the underlying artwork is considered an intellectual and creative work under the Intellectual Property Code or if associated with tangible artwork.
Taxpayers should examine on a case-by-case basis the VAT rules that would have applied had the goods or services had been supplied without an NFT.

David Hirsch
BDO in France
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