Danish Court Rules RuneScape Gold Sales Are VAT-Liable

The Danish Tax Administration published the National Tax Court's ruling on the VAT liability for virtual gold sales in the computer game RuneScape. The case sheds light on modern VAT issues arising from digital and virtual gaming, resulting in a DKK 510,304 VAT liability assessment for the period from January 1 to December 31, 2020. 

Background of the Case and the Tax Court's Decision

After receiving information from the local municipality, which reported two anonymous inquiries about deposits in the bank account of one individual, and forwarded bank statements and an income overview, the Danish Tax Authority initiated an inspection. The inspection resulted in the Tax Agency requesting clarification and documentation from the individual regarding deposits made in 2020 to one of the bank accounts and requiring a formal response by December 7, 2021. 

During the phone meeting, the individual explained that most of the deposits came from selling virtual gold earned in the online game RuneScape, noting that the transactions were carried out through Facebook and could be documented in message histories. Moreover, the individual explained that in 2020, he was receiving unemployment benefits and cash assistance due to a previous cruciate ligament injury and subsequent depression, and he was registered with the local job center.

Ultimately, the Tax Authority determined that, between January 1, 2020, and December 31, 2020, the individual earned a total of DKK 2,551,527 (around EUR 341,000) from selling virtual gold through approximately 2,500 transactions. Consequently, the Tax Authority concluded that the individual was operating an economic activity by buying and selling gold in RuneScape, and that this activity required payment of DKK 510,304 (nearly EUR 68,500) in VAT for 2020.

The individual appealed the Tax Authority's tax assessment, arguing that no economic activity occurred and that the VAT liability should be reduced to DKK 0 for the period in question, as the sale of gold in the computer game RuneScape is exempt from VAT. As an alternative, the individual stated that a total VAT liability for the period should be reduced to DKK 4,424 (around EUR 600).

After carefully considering all the facts, including the individual's playing and transactional history, the National Tax Court concluded that the individual did indeed engage in an independent economic activity by selling gold he had earned by playing or won in duels in the Duel Arena in RuneScape. The Court determined that the gold can be exchanged for other virtual game items. However, it is against the game provider's rules to engage in commercial trade in its products, including gold.

Conclusion

Given the scale and regularity of the transactions, as well as the substantial income generated, the National Tax Court concluded that the individual effectively operated a VAT-liable business aimed at generating ongoing revenue from his gaming activity. Notably, the Court found the Tax Authority's claim justified. However, it modified the Tax Authority’s assessment by reducing the VAT liability, noting that the original tax base had been miscalculated.

Source: Danish Tax Administration