France - VAT Treatment of NFTs Clarified

From the moment the first NFT was minted to its global expansion, many legal issues surrounded these digital tokens. Intellectual property rights, contractual disputes, fraudulent activities, consumer protection, and regulatory compliance have all been significant challenges accompanying NFTs' popularity.

Among these, the VAT treatment of NFTs has emerged as a particularly challenging issue for governments and NFT enthusiasts. 

Following the examples of the US, UK, Sweden, and some other countries, the French Tax Authorities (FTA) released a public ruling on 14 February 2024 clarifying the VAT treatment of transactions using non-fungible tokens (NFTs).

Analysis of the Public Ruling

The FTA's stance on NFTs is distinct. It states that NFTs are not subject to specific VAT regulations. Instead, their VAT treatment is determined by the general VAT rules that apply to the underlying transaction, setting them apart from other crypto-assets.

It's important to understand that NFTs are tangible and intangible ownership certificates. Therefore, a transaction involving the transfer of an NFT is directly related to the original supply. This key understanding is crucial in determining the VAT treatment of such transactions, which refers to the goods or services involved, not the NFT token itself. 

Furthermore, operations involving NFTs do not fall under banking or financial operations exempt from VAT because NFTs do not correspond to the three main categories of crypto-assets, namely payment tokens, utility or usage tokens, and investment tokens, due to their indivisibility and non-fungibility.

In its public ruling, FTA included several examples of certain operations carried out using NFTs that are qualified for VAT purposes:

1. Creation and sale of digital collectible cards associated with NFTs;

2. Creation and sale of digital graphic works associated with NFTs;

3. Financing a video game in development through the issue of NFTs.

Conclusion

The FTA ruling emphasizes that VAT treatment depends on the nature of the goods or services linked to NFTs, distinguishing NFTs from other crypto assets. According to this ruling, NFTs can be considered a supply of services or digital services when their issuance is largely automated. In addition, NFTs do not fall under VAT-exempt categories for banking or financial operations due to their nature.

Source: Public ruling from 14 February 2024