France: Tax authority guidance on VAT treatment of non-fungible tokens

The French tax authority on 14 February 2024 published a public ruling (French) clarifying the value added tax (VAT) treatment of non-fungible tokens (NFTs).

In the ruling, the tax authority acknowledges that NFTs are not subject to any specific VAT regulations, and that the usual principles and rules ought to apply. If an NFT is used as a certificate of ownership for a good or service, a transaction involving the transfer of an NFT does not concern the token itself, but the good or service it represents. Therefore, VAT rules must be applied on a case-by-case basis.

The ruling further includes guidance on the VAT treatment of three specific NFTs:

• Creation and sale of digital collectible cards associated with NFTs: The underlying operation, the supply of digital cards, determines the applicable VAT regime. The NFT generated for each card is considered a means of conducting a transaction on a digital card and does not in itself represent a distinct service. If the digital collectible cards are issued through telecommunication networks in a largely automated manner with minimal human intervention, they will qualify as “digital services” for VAT purposes and thus be taxable where the consumer is established.
• Creation and sale of digital graphic works associated with NFTs: The underlying operation, the transfer of digital graphic works, determines the applicable VAT regime. The transfer of these rights is classified as a service provision. Even if the digital graphic work is transferred via telecommunication networks, if human intervention remains predominant in the creation of the works, these services will not be considered as “digital services” for VAT purposes. They should not be confused with the services provided by the platform to its members, which consist of creating the NFTs and enabling the transfers—such services are indeed electronic services. Digital graphic works can be subject to a reduced VAT rate if they meet the criteria defined by the general tax code. In this respect, compositions created by the artist via computer processes and not entirely executed by hand are thus not eligible for the reduced VAT rate of 5.5%. However, provided that the graphic works meet the qualification criteria of “works of the mind” as per the intellectual property code, their transfer will be subject to the reduced VAT rate of 10%.
  
• Financing of a video game in progress through the issuance of NFTs: The sales of digital objects representing game elements made by the company to finance the video game’s design are not subject to VAT at the time of the financing operation. However, if the game is realized and put into service, the game accessories associated with these tokens become usable by their owner. At this point, the accessories must be considered as intangible goods made available to the token holder and therefore taxed under VAT in the usual conditions.

KPMG observation

The guidance issued by the French tax authorities is in line with similar guidance issued by other European tax authorities (e.g., Denmark, Spain) regarding the VAT treatment of NFTs representing digital art, as well as with an initial working paper released by the EU VAT Committee on the matter.

Interestingly, in line with general EU VAT principles, the French guidance highlights the importance of the human intervention element when determining whether a service qualifies as “digital service” or “general service” for VAT purposes. However, in the case of France, the distinction only matters for intra-EU business-to-consumer (B2C) sales as “digital services” will be taxable where the consumer is located while “general services” will be taxable where the vendor is located. For sales made by non-EU sellers, the distinction is irrelevant as both B2C “digital services” and “general services” sales will be taxable in France if the consumer is established there.

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com