French public ruling – Non-Fungible Tokens (NFTs)

The French tax authorities released a public ruling regarding the VAT treatment of NFTs in which they outline that:

1. NFTs are subject to general VAT rules and, where they are used as a certificate of ownership of a tangible or intangible asset, VAT applies in accordance with the supply of that asset; and
2. Transactions involving NFTs are not to be treated as exempt banking or financial transactions as NFTs are – by definition – not fungible unlike payment, utility, usage or investment tokens.

The French tax authorities also provide examples of transactions involving NFTs:

1. The creation and sale of digital trading cards as NFTs, which can be stored in an electronic wallet to be resold or used to play on the seller's website, are treated by the French tax authorities as a service. Where the issuance of these cards is largely automated with minimal human intervention, the service is viewed as an electronically supplied service.
2. The creation and sale of a single copy of digital graphic work of art, in exchange for digital assets or currencies on an IT platform where they are first associated with a NFT, are treated as a supply of service and if, despite the use of IT tools, human intervention remains predominant in its creation, the service is not considered to be provided electronically.
3. The sale of in-game items as NFTs to finance the design of a video game, is subject to VAT when the digital items are effectively transferred. Any marketing or sale of game components represented by an NFT after the game is released is subject to VAT.

Key takeaway

Considering the guidance issued by the French tax authorities, it is crucial for businesses to have a precise understanding of the complex underlying transactions that involve NFTs to identify their correct VAT treatment.

Reference: Taxe sur la valeur ajoutée