In-Game Currency and EU VAT: What Businesses Need to Know

As a result of conflicting arguments between the Lithuanian-based company and the Lithuanian Tax Authority over the resale of RuneScape’s virtual currency Gold, a key question was raised before the Court of Justice of the European Union (ECJ). This question is, should trading in-game currency be treated like a cryptocurrency exchange, voucher transactions, or simply a taxable digital service?

Background of the Case 

Žaidimų valiuta buys and resells the virtual currency, or Gold, used in the online video game RuneScape. The company purchases this in-game currency and then resells it to players in exchange for real-world money, such as euros. 

During the tax inspection, which covered the years 2020 to 2023, the Regional Tax Inspectorate determined that these transactions constituted taxable supplies of services for VAT purposes. Given that the company did not declare and pay VAT on these transactions, the Tax Inspectorate issued a decision requiring the company to pay the unpaid VAT, as well as late-payment interest and a financial penalty.

The company challenged this decision before the Lithuanian Tax Disputes Commission, arguing that the in-game Gold should be treated as a virtual currency, similar to cryptocurrencies. The company based these arguments on the precedent set by the ECJ's Hedqvist C‑264/14 decision, commonly known as the Bitcoin case. Under this decision, Bitcoin-to-traditional-currency exchanges are deemed exempt from VAT. The company claimed that the same exemption should apply to RuneScape Gold transactions.

Alternatively, the company suggested treating the virtual currency as a multi-purpose voucher, which would also affect the application of VAT. Finally, the company stated that even if VAT were due, the taxable amount should be only the margin, that is, the difference between the purchase and resale prices, rather than the full resale value of the Gold.

The Inspectorate denied these arguments and stated that in-game Gold cannot be considered a virtual currency comparable to Bitcoin because it has no independent economic function outside the game and can only be used within RuneScape. Moreover, the Inspectorate stated that the company is not a financial service provider or a currency exchange, and that its activity constitutes a taxable digital service. Also, the Inspectorate argued the voucher argument, explaining that the virtual currency is issued by the game developer, not by the company.

After examining how the RuneScape virtual currency Gold functions within the game’s legal and economic framework, the Tax Disputes Commission noted that players must accept the game’s terms before creating an account, and those terms state that players do not actually own either their accounts or the in-game items, including Gold. As a result, these assets remain legally under the game operator's control. However, the Commission observed that Gold still has a practical economic function inside the game.

Given these functional roles of Gold, the Commission questioned how the income generated from the sale of this virtual currency should be treated for VAT purposes. Therefore, it paused the proceedings and referred a request for a preliminary ruling to the ECJ.

Main Questions from Request For Ruling

The Tax Disputes Commission raised two questions before the ECJ. With the first question, the Commission asked whether the sale of RuneScape Gold falls within the VAT exemption for currency transactions under Article 135(1)(e) of the EU VAT Directive.

Should the ECJ determine that the exemption does not apply, with the second question, the Commission asked how the taxable amount should be calculated: whether VAT should apply to the full price received from selling the Gold or only to the margin between the purchase price and resale price.

Applicable EU VAT Directive Article

Regarding the relevant provisions of the EU VAT Directive, the ECJ singled out Articles 30a, 30b, 73, 73a, and 135(1) as the most important. Articles 30a and 30b define what counts as a voucher for VAT purposes and explain how multi-purpose vouchers are taxed, respectively. 

While Article 73 provides the general rule by stating that the taxable amount normally equals the full consideration received for the transaction, Article 73a provides a more specific rule for transactions involving multi-purpose vouchers. Finally, Article 135(1) establishes a VAT exemption for certain financial transactions relating to currency, banknotes, and coins used as legal tender, including negotiations concerning them.

Lithuania National VAT Rules 

Only Article 2(22) of the Lithuanian VAT Law, which defines what qualifies as goods for VAT purposes in Lithuania, was noted as relevant for this case. According to this article, goods include any physical items, and the definition is broad enough to cover not only tangible objects but also certain forms of energy, such as electricity, gas, heat, and cooling. 

Notably, the Law also states that banknotes and coins with numismatic or collector value are treated as goods rather than currency when traded as collectibles. Additionally, the Law states that a computer storage medium will not be treated as a good when the content it contains is non-standard software, meaning software that is specifically developed for particular users rather than for mass-market distribution.

Importance of the Case for Taxable Persons

As virtual economies increasingly intersect with real-world markets, Tax Authorities are being forced to determine how in-game assets should be treated under existing VAT rules. This case provides taxable persons with much-needed clarification and explanation of the VAT treatment of digital and virtual assets that exist solely within games and online platforms.

Given that this case is observed closely with the 2014 Bitcoin case, it underscores the importance of understanding the legal and economic characteristics of digital assets, including ownership rights, functionality within a platform, and how consumers use these assets, as these factors can influence whether transactions are subject to VAT.

Analysis of the Court Findings

As a preliminary point, the ECJ recalled the general principles governing VAT exemptions under the EU VAT Directive. The ECJ clarified that the exemptions under Article 135(1) are autonomous concepts of EU law, meaning they must be interpreted uniformly across all EU countries to prevent inconsistent application of VAT rules within the EU. 

Additionally, the terms describing VAT exemptions must be interpreted strictly, because they represent exceptions to the basic rule of the EU VAT system. Nevertheless, the strict interpretation does not mean that the provisions should be interpreted so narrowly that the exemptions lose their practical effect. 

Conversely, the interpretation must remain consistent with the purpose of the exemption and with the principle of fiscal neutrality, which requires similar economic activities to be treated equally for VAT purposes. Having that in mind, the ECJ noted that the exemptions covering financial transactions exist partly to avoid practical difficulties in determining the taxable amount and the deductible VAT in complex financial operations.

The ECJ added that this Article explicitly states that EU countries must exempt transactions involving currency, banknotes, and coins used as legal tender. Nonetheless, based on the established case law, primarily the Hedqvist case,  the exemption can also apply to non-traditional currencies, meaning forms of money that are not official legal tender in any country, provided they are accepted by the parties solely as a means of payment and have no other purpose, such as Bitcoin.

By further applying its previous reasoning in the Hedqvist case, the ECJ explained that the VAT exemption for currency transactions can extend to non-traditional currencies if two cumulative conditions are met. Firstly, the currency must be accepted by the parties involved as an alternative to legal tender. Secondly, the currency must have no purpose other than functioning as a means of payment.

Based on the data provided by the Commission, the ECJ determined that Gold can only be used within the game environment and cannot be used outside the game to obtain real-world goods or services. Also, games’ terms of use state that the digital assets associated with the game, including Gold, do not belong to players, reinforcing the idea that they exist solely as part of the game’s internal mechanics. Thus, it is apparent that RuneScape Gold is not accepted as a general alternative to legal tender and is limited to use inside the game.

Regarding the question of whether Gold could be classified as a multi-purpose voucher, the ECJ recalled that two cumulative conditions must be met for an instrument to qualify as a voucher. First, there must be an obligation to accept the instrument as payment or partial payment for goods or services, and second, the goods or services to be supplied must be specified either on the instrument itself or in accompanying documentation, such as the terms of use.

In the case of in-game Gold, the ECJ stated that even if the second requirement might arguably be satisfied, the first condition is not met. In its Opinion, the Advocate General noted that Gold is not an instrument used to obtain a later supply but rather part of the online game itself, functioning as a consumable digital element within the game. 

Courts Final Decision

The ECJ determined that transactions involving the exchange of real money for virtual currency used only within an online video game, such as RuneScape Gold, cannot be treated as financial transactions involving virtual currencies such as Bitcoin and therefore remain subject to VAT unless another legal classification applies. 

Furthermore, the ECJ concluded that the in-game currency itself represents the digital service consumed within the game rather than an instrument entitling the holder to receive a future supply of goods or services. Consequently, such virtual currencies cannot be treated as vouchers, including multi-purpose vouchers under the EU VAT Directive. 

As a result, the exchanges of real currency for this type of in-game virtual money must be treated as taxable digital services, and VAT must therefore be applied to the entire amount received for the sale.

Conclusion

Essentially, this case serves as a cautionary example for taxable persons operating at the intersection of digital economies and traditional tax frameworks. Businesses engaging in the resale of in-game currencies, digital tokens, or similar virtual goods must carefully consider whether their activities fall within existing VAT categories, such as financial transactions, vouchers, or taxable services, and how the taxable amount should be calculated.

Source: Case C‑472/24 - MB Žaidimų valiuta v State Tax Directorate under the Ministry of Finance of the Republic of Lithuania, EU VAT Directive, VATabout - Bitcoin Case C‑264/14