Cryptocurrency, digital platforms and metaverse taxation on digital services and trades (2023)

Tuesday 5 December 2023

Report on a session at the annual IBA ‘The New Era of Taxation Conference’ in Rio de Janeiro
Friday 22 September 2023

Session Chairs
Clemens Philipp Schindler, Schindler Rechtsanwälte, Vienna
Michael Silva, McDermott Will & Emery, Miami

Ramona Azzopardi, WH Partners, Ta’ Xbiex, Malta
Eduardo Michán, Galicia Abogados, Mexico City
Daniel de Paiva Gomes, Vieira Drigo Vasconcellos e Paiva Gomes Advogados, São Paulo
Alessandra Sanelli, Banca d’Italia, Rome

Tsedey Girma Mengistu, BonelliErede, Addis Abeba


Due to the ways in which digital technology allows non-residents to do business without creating a physical taxable presence, countries are rushing to amend their tax codes and treaties to address this gap. The panel began their discussion with an example and tried to tackle the questions arising from their respective tax legislation, highlighting the potential gaps. Furthermore, the panel discussed which transactions should see taxes arise in regard to cryptocurrency, digital platforms and the metaverse. The panel finished the discussion by trying to understand how the metaverse is defined/perceived by tax authorities.

Panel discussion

The panel began the conversation with an example and specific questions, which helped each panellist explain their respective country’s regulations and the tax gap.

Digital services

Example 1. Tessa starts her day by listening to a motivating podcast on her preferred streaming platform. The membership cost is debited from her account as the programme plays.

Question 1. How do governments levy taxes on such digital services? Are they classified as digital commodities or services?

Alessandra Sanelli asked: what are the issues presented? In the absence of a physical company structure, it is difficult to assume a permanent establishment. Sanelli pointed out that Italy has introduced a significant presence, even in the absence of a physical structure. Aspects that are taken into consideration include the 2018 case involving Netflix. The Italian Prosecutor opened a probe into alleged tax evasion by Netflix, and while Netflix does not have a local office in Italy, the Prosecutor in Milan argued Netflix should pay taxes in the country, just as a company with a physical presence there does. Because it uses the local digital infrastructure to stream content to an estimated 1.2 million users in Italy, Netflix was forced to establish local subsidiaries.

Ramona Azzopardi continued the discussion from a value-added tax (VAT) point of view on streaming. Companies that are offering streaming services in the European Union are considered mini one stop shops for VAT purposes. Azzopardi pointed out the difficulties companies face: while they are able to collect VAT, they may face difficulties in reclaiming VAT. She further underscored the need to define the new means of streaming services used on TikTok.  

Eduardo Michán stated that in Mexico a digital service tax was introduced in 2022. Even if such companies don’t have a physical presence in Mexico, streaming services are expected to register and collect taxes from their users in Mexico. The changes also provided local companies with a competitive advantage. Streaming companies are now forced to appoint a representative in Mexico. However, this does not mean that such companies will have an automatic permanent establishment in the country. Michán highlighted some of the gaps in Mexican legislation: one being that there is no clarity on the crediting of output VAT with input VAT, and another being how the permanent establishment assessment is applied to companies that are registered for VAT purposes only. The audience was left to consider whether the applicability of VAT triggers a permanent establishment.

Daniel de Paiva Gomes explained that in Brazil VAT is designated to the state and municipality. Gomes pointed out that Brazil does not have a tax on services. Withholding rules concerning these types of services do not apply. Going back to the example, the only tax that Tessa might pay would be an exchange of currency tax.

Digital advertising services

Example 2. Tessa goes to work after listening to the podcast. Her work is her own online business, where she sells handcrafted jewellery. To increase traffic to her website, she chooses to engage in digital advertising, posting advertisements on major social media sites. She also decides to accept Bitcoin as a means of payment.

Question 2. How is advertising taxed? Is there different pricing or other factors to consider in regard to various different kinds of advertising platforms?

Sanelli stated that Italy has introduced a digital services tax. Digital advertising falls into this category. Another category is digital platforms, where users interact themselves and data is collected on those users. On the other hand, the acceptance of Bitcoin as a means of payment has to be included in the tax on income. The value of the bitcoin, where the transaction happens, is important.

Azzopardi pointed out that digital taxes in Europe are applicable from a personal perspective. Tax and VAT applies once the product is consumed, not at the point of advertisement. Digital currency in Malta, on the other hand, requires that the value of the cryptocurrency at the time of the transaction shall be reported for income tax purposes. However, holding a cryptocurrency is not taxable, unless a person is buying and selling it.

Michán noted that if Tessa is a Mexican in the example provided and she is making a payment for the advertisement service, then she needs to withhold a certain amount and make a payment to the government. Otherwise, she will be liable for a penalty. Also, if she wants to report it as an expense for her business, then it will only be deducted as such if she made such a withholding.

Gomes highlighted that payment in bitcoins in Brazil will be taxed as the sale of goods if the person used it as a means of payment. Otherwise, when that person plans to sell the bitcoins, it will be seen as a capital gain and as such be taxed.

Michael Silva added that in the US, accepting cryptocurrency as a means of payment is seen as an exchange of properties and will be taxed as such.

Cloud computing

Example 3. Tessa notices that she is running out of digital storage space for her product images. She expands her cloud storage system to handle the increasing amount of high-resolution photographs.

Question 3. Is cloud storage considered a service, a digital product, or something else? How are these service providers and users taxed? If the cloud service provider is abroad, how does withholding tax work in this case?

Sanelli stated in Italy it will be considered as a digital service. Such services, from the Organisation for Economic Co-operation and Development (OECD) model convention perspective, will be considered as a business income, while the UN convention will see them as royalties or technical services.

Michán followed the conversation, commenting that there is no specific provision in Mexico in this regard. It might be seen as a service, but such cloud computing services do not trigger tax. However, this would need to be assessed on a case-by-case basis.

Gomes noted that standard services are considered as digital goods, but need to be assessed case-by-case. For example, in Brazil books are not taxable goods, so if the cloud service is storing books, then it will be exempt.


Example 4. Tessa learns at lunch about a new digital token that is gaining popularity. She purchases a few tokens from a cryptocurrency exchange, seeing the investment potential.

Question 4. What exactly is a taxable event in the realm of cryptocurrency? How do governments categorise and tax digital assets (income tax and VAT)? How do security tokens vary from cryptocurrency or utility tokens? What are the regulatory obstacles and tax ramifications for companies issuing these tokens and for the people acquiring them?

Sanelli stated that the Italian tax authority provides guidance on these aspects. The general approach is to consider cryptocurrency as a foreign currency. From a VAT perspective, it can be considered as a foreign currency transaction. Gain and loss are relevant from tax perspectives. The income from crypto-asset provisions take into consideration other financial assets as well.

Azzopardi stated that there are two types of vouchers: single vouchers (VAT and tax will be applicable) and multipurpose vouchers (which are considered if a person is selling shares), so delayed tax will be applicable.

Michán pointed out that in Mexico there are no tax provisions for cryptocurrency or other digital coins. Therefore, unrealised gains will not be taxed.  

Gomes noted that Brazilian Federal Act 14,478 regulates virtual assets. However, security tokens and utility tokens are not part of the regulated virtual assets.

The metaverse

Example 5. Tessa decides to take a break after lunch and enters her favourite metaverse. In this digital world, she goes to a virtual mall and buys a digital dress for her avatar. While not tangible in the physical world, this outfit has significant worth in the metaverse.

Question 5. How are virtual real-world transactions taxed? What is the tax consequence of purchasing virtual real-estate, digital products, or avatars?

Azzopardi finished the discussion with follow-up questions, including by asking: what is the metaverse, really? Have we really understood it? What if the transaction is peer to peer? How can we tax such transactions? Everything needs to be understood on a case-by-case basis.

Conclusion and final remarks

The panel finished its discussion by trying to understand what the metaverse really is, concluding that it’s a new technology that's still evolving and becoming part of our day-to-day activities. Is this really the end of the discussion or just the beginning?