EU: VAT Committee considers that individuals regularly selling in-game assets are subject to VAT

An individual selling skins regularly over an extended period is to be recognized as a taxable person

VAT Committee considers that individuals regularly selling in-game assets are subject

The VAT Committee of the European Commission on 21 November 2023 published Working Paper 1070, which discusses the value added tax (VAT) treatment of the secondary sale of in-game assets, such as “skins.” The VAT Committee is considering whether individuals who sell these in-game assets should be subject to VAT.

Denmark posed questions to the VAT Committee regarding the VAT treatment of transactions related to non-fungible tokens (NFTs), especially the trading of virtual products known as "skins" within video games. These skins—digital designs used to customize characters within a video game—can be traded between players on various platforms. The question is whether these trades can be considered as service supplies for consideration by taxable persons and thus be subject to VAT. In a specific case highlighted in the working paper, an individual, referred to as "X," plays an online video game, acquires skins, and sells some of them on another platform with a profit margin of 10% - 20%. X's annual trade volume is estimated to be around €65,000.

The Danish Tax Assessment Council believed that X's trading qualifies as an independently carried out economic activity for VAT purposes, as it involves numerous transactions aimed at obtaining an income. Therefore, X is considered a taxable person for VAT and must register for VAT when yearly turnover exceeds the Danish registration threshold of DKK 50,000. However, this stance has created problems due to the difficulties individuals face in complying with normal VAT requirements such as invoicing. Moreover, Denmark noted that since "skins" are digital assets, the secondary sale of these digital assets does not fall within the framework of existing special regimes for sales of second-hand goods, which are limited to tangible properties, or existing exemptions for financial services.

In the working paper, the Commission Services focus on whether individuals trading these “skins” should qualify as taxable persons for VAT purposes. They believe that the trading of virtual products like skins in online video games can fall within the scope of VAT if it is carried out regularly and with the intention of generating income.

The Commission Services assert that an individual selling skins regularly over an extended period should be recognized as a taxable person. This means that the individual is conducting an economic activity and is therefore subject to VAT obligations, including filing returns and invoicing. They also note that the age of the individuals participating in these transactions is irrelevant to their VAT status. This means that even if the individual is a minor, they are still considered a taxable person if they are conducting an economic activity.

KPMG observation

The paper shows that standard VAT principles can and ought to be applied when determining the VAT treatment in the digital/crypto space. However, while technically correct, this result could potentially present practical challenges, as Denmark highlighted in its query. Furthermore, the Commission Services' current analysis does not go beyond the VAT status of the individual selling the skins, especially not the consequences for the platforms facilitating the secondary sale of the skins. Under article 9a of the EU VAT Implementing Regulation, digital platforms facilitating the sale of “electronically supplied services” are deemed to perform a buy/sell of the electronically supplied services. It would be beneficial for all parties involved to understand the platform's obligations when the individual selling over the platform (1) qualifies as a taxable person for VAT purposes and is registered for VAT, (2) qualifies as a taxable person for VAT purposes and is not registered for VAT, and (3) does not qualify as a taxable person for VAT purposes because the individual's activities are de minimis. It would also be helpful to clarify the digital platform's due diligence (if any) obligations to determine if the individual qualifies as a taxable person. Finally, the case highlights that the EU legislator may want to consider implementing a special mechanism for secondary sales of digital assets to mirror existing rules for sales of second-hand goods to simplify the VAT treatment of secondary sales of digital assets.


For more information, contact a KPMG tax professional:

Philippe Stephanny |

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