Lower Saxony Tax Court, judgement of 10 July 2025 - Ref. 5 K 26/24, final and binding.
The parties involved are disputing the VAT treatment of trading in non-fungible tokens (NFTs). NFTs were also popular products on the crypto market last year because they offer artists the opportunity to make works of art available to a wide audience in a new way. NFTs are cryptographic tokens that are generated by a blockchain as a special type of distributed ledger technology (DLT) and are unique rather than interchangeable or fungible. An NFT can only be acquired as a whole and only exists once. From a tax perspective, there are numerous unresolved problems with the interface between the artist and the company generating the NFT, the minting, the sale of the NFT for cryptocurrency or via external platforms. Some of these problems were the subject of the final decision by the Lower Saxony Fiscal Court.
Facts of the case
In 2021, the plaintiff, a sole trader, traded NFTs as collectibles via various internet platforms. He was a reseller and used platforms such as OpenSea and Rarible for his trading. The transactions were processed via smart contracts on the Ethereum blockchain. The plaintiff taxed the transactions at the reduced tax rate of 7 per cent in accordance with Section 12 para. 2 no. 7 lit. UStG (copyright), which the tax office considered to be incorrect and applied the standard tax rate. In support of his claim, the plaintiff took the view, contrary to his VAT returns, that the trade in NFTs was a non-taxable transaction. In the absence of an identifiable service recipient, there would be no exchange of services within the meaning of Section 1 (1) no. 1 UStG. Trading in NFTs generally takes place as an exchange transaction between two wallets by means of a smart contract on a decentralised blockchain. A VAT ID number would not be provided by the purchasers of the NFTs. Due to the pseudonymisation of the wallet addresses and the partial anonymity, none of the contracting parties would be able to identify the counterparty or determine its location. There is also currently no possibility of obtaining information from the operators of the blockchains via requests for information or similar. The FA and the tax court did not agree with this view.
From the reasons for the decision
The tax court dismissed the claim. The plaintiff's NFT transactions were not supplies, but other services pursuant to Section 3 para. 9 sentence 1 UStG, whereby the recipient of the service could be identified via the blockchain. Purely digital assets such as the traded NFT collections are not tangible goods and are also not covered by Art. 15 of the VAT Directive.
In the case in dispute, these services were also not provided via a portal such as an app store in accordance with Section 3 para. 11a sentence 1 UStG, but outside of such a portal on a decentralised blockchain database.
The services are to be categorised as electronically supplied services that are taxable at the place of residence of the recipient. However, the plaintiff had not been able to provide sufficient evidence that the recipients of the services were domiciled abroad, which led to an estimate of the domestic turnover. Due to the worldwide use of the trading platforms and the plaintiff's insufficient co-operation in determining the place of residence of the recipients, the court estimated the taxable domestic turnover at 50% of the total turnover. In the case in dispute, the plaintiff did not have a VAT ID number or comparable certificates from the recipients of the NFT, so that it could be assumed that he had provided his services to non-entrepreneurs. The place of supply was therefore to be determined in accordance with sec. 3a para. 1 UStG.
The transactions were rightly subject to the standard tax rate by the tax office, as no tax exemption pursuant to Section 4 No. 8 UStG or application of the reduced tax rate pursuant to Section 12 para. 2 UStG was justified. NFTs were not securities and the conditions for a tax reduction due to copyright transfers had demonstrably not been met.
The authorised appeal was not lodged by the plaintiff.
Please note:
The ECJ once again ruled that input VAT deduction cannot be denied solely on the basis of formal deficiencies. If the material requirements are met, the input VAT deduction must be granted, whereby the administration must take into account all the information available to it. Consequently, the correction of the invoice is not mandatory in such cases.
The tax administration's mere assumption that there is fraud or that the recipient is involved in tax evasion is not sufficient. Instead, the tax authorities must prove that fraud has occurred or that the recipient should have been aware of this.
It is interesting to note that the ECJ has ruled by decision and thus assumes a legal situation that can be clearly answered on the basis of previous case law and that the ECJ's answer leaves no room for reasonable doubt. In disputed cases, an attempt can be made on the basis of this decision to present formal deficiencies in invoices as irrelevant if the tax office has all the information it needs to check the substantive deductibility.
However, it can be assumed that the tax authorities will disregard this decision, although the ECJ has often emphasised that the Member States are free to provide for sanctions in the event that the formal requirements for exercising the right to deduct input VAT are not met. In this context, reference should be made to the provision on fines in Section 26a para. 2 no. 1 UStG, according to which anyone who does not issue an invoice or does not issue it on time can be penalised with a fine of up to €5,000. However, according to the current view of the tax authorities, an incorrect invoice does not fall under the scope of application of sec. 26a para. 2 no. 1 UStG (see sec. 14.5 para. 1 sentence 13 UStAE).
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