Sweden: VAT treatment of NFTs associated with a digital work

The Swedish tax authority on 28 March 2024 published a ruling (Swedish) clarifying the value added tax (VAT) treatment of non-fungible tokens (NFTs) associated with a digital work.

The ruling defines an NFT as a unique record on a blockchain, signifying the ownership of a specific asset. This record not only represents the asset but also identifies the blockchain account to which the asset is tied. The owner of the asset is the individual who controls that account. The ruling further defines a blockchain as a decentralized database stored across multiple computers in a network. The uniqueness of NFTs lies in their non-fungibility, meaning they are not interchangeable, as each NFT is distinct. NFTs are transferable, with each transfer being recorded on the blockchain. These tokens can represent both tangible and intangible assets, such as the ownership of a digital work or the copyright of a digital work.

According to the Swedish tax authority, an NFT linked to a digital work typically comprises two distinct components: (1) the ownership of the digital work associated with the NFT and (2) the NFT itself, which refers to the registration on the blockchain. In rare instances, a third component might be present—the assignment or transfer of copyright. However, a copyright is only included if a specific agreement clearly indicates that the transaction encompasses such a right.

The ruling states that a typical consumer seeks both the ownership of the digital work and the NFT to which the work is attached. As there are two elements, the ruling addresses whether there is a single or multiple transactions for VAT purposes. In this respect, the ruling highlights that a typical consumer seeks both the ownership of the digital work and the NFT to which the digital work is attached, but that neither element has a value. Given that both elements hold no value, neither can be deemed the primary component while the other is subordinate. Instead, these parts are interdependent and share the same financial purpose. Collectively, they present as a single transaction, and it would be artificial to separate them. Therefore, the transfer of the NFT and the digital work are so intrinsically linked that they objectively form a single transaction. The Swedish tax authority concluded that the combination of the digital work's ownership and the ability to verify this ownership through the NFT constitutes a new service, specifically, a digital service.

Finally, in instances when the transfer of an NFT also encompasses copyright, the ruling determines that the evaluation hinges on whether the copyright is tied to the NFT or not. If the copyright is not connected to the NFT, it is considered as two separate transactions. However, in rare cases where the blockchain registration indicates that the NFT represents both the ownership of the digital work and its copyright, a case-by-case evaluation must be conducted to assess the nature of that transaction. 

KPMG observation

The guidance issued by the Swedish tax authority is in line with similar guidance issued by other European tax authorities (e.g., Denmark, France, 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.

The Swedish guidance expands on the idea that an NFT does not hold inherent value independently; instead, its value is derived from what it represents. Consequently, in many instances, this justifies treating the NFT and what it represents as a single transaction. However, a case-by-case evaluation is warranted to determine whether what the NFT is purported to represent is sufficiently linked to the NFT itself to be considered as a single transaction when the NFT is linked to more complex transactions (e.g., both intangible and tangible property).

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Jillian McPhee | jillianmcphee@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com