Crypto is crazy – non-fungible tokens are crazier still

Monday 8 April 2024

Report on a session at the 13th annual IBA Finance & Capital Markets Tax Virtual Conference in London

Tuesday 16 January 2024

Session Chair

Niklas Schmidt, Wolf Theiss, Vienna


Thomas Dasselaar, Van Doorne NV, Amsterdam

Ben Symons, Old Square Tax Chambers, London

Lisa M Zarlenga, Steptoe & Johnson, Washington DC

Giorgio Vaselli, Giovannelli e Associati, Milan


Daniel Kropf, Schindler Attorneys, Vienna


The panel examined recent developments regarding the taxation of crypto-assets in various jurisdictions. The presentation focused on what non-fungible tokens (NFTs) are, important definitions in recent Organisation for Economic Co-operation and Development (OECD) rules and European Union regulations dealing with crypto-assets (eg, the Markets in Crypto-Assets Regulation (Regulation (EU) No 2023/114 otherwise known as MiCAR), the OECD’s Crypto-Asset Reporting Framework (CARF) and the EU’s tax transparency rules for crypto-asset transactions (Revised Directive on Administrative Cooperation, DAC8)), the value-added tax (VAT)-treatment of transactions concerning crypto-assets and NFT platforms in the United Kingdom and, finally, the income tax treatment (including reporting obligations) in the United States and Italy.

Panel discussion

Niklas Schmidt, the author of several articles and books about the taxation of crypto-assets in Austria, started the discussion by introducing the speakers and providing an explanation on what NFTs are and how these assets are used. NFTs stands for ‘non-fungible tokens’ and they are basically tokens (digital assets) that are unique and cannot be copied or substituted.

Digital works of art can usually be copied and, therefore, could not be sold until recently. However, digital originals can now be created as NFTs, so artists can sell non-reproducible works. A well-known example is the ‘Disaster Girl’ meme, a famous picture of a young girl smiling in front of a burning house. The picture was combined with an NFT, enabling the young lady on the picture to sell the certified original photo for approximately $480,000 in 2021.

Other assets that are often combined with NFTs include collectibles, in-game assets and the accessories of famous brands (Nike, Adidas, Louis Vuitton, Gucci, etc). NFTs can also be used to create unforgeable tickets, certificates, transcripts or diplomas.

Thomas Dasselaar continued the discussion with some important definitions contained within recent OECD and EU regulations dealing with crypto-assets, namely MiCAR, CARF and DAC8.

The MiCAR aims to provide a new legal framework for the EU’s internal market and is applicable to persons engaged in the issuance, the public offering and admission to trading of crypto-assets, as well as providers of related services. Within the MiCAR framework, crypto-assets are defined as ‘a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology.’ It is important to emphasise that ‘true’ NFTs (being ‘non-fungible’) are out of the scope of MiCAR, since the EU authorities consider that the value of NFTs are not easily compared to equivalent assets and have limited financial use. Nevertheless, insofar as an NFT is fractionalised (cut up into pieces), each fractional part may not be considered unique, which could result in MiCAR being applicable.  

With crypto-assets, income can be earned and stored without the use of traditional financial intermediaries and, thus, outside of common reporting rules. To close this gap, the OECD introduced the CARF to achieve tax transparency by expanding the OECD Common Reporting Standard (CRS) to cover crypto-assets, including certain NFTs. Like previous DAC updates, DAC8 mainly ensures the consistent implementation of the OECD model rules by EU Member State laws. Crypto-asset service providers are in scope if they service EU residents and, thus, need to apply CARF-like customer due diligence. Like CARF, certain NFTs are covered by DAC8 and are subject to reporting requirements (starting in 2027).

Ben Symons, who wrote the book Cryptocurrency and Blockchain, provided an overview of important issues on the VAT treatment of NFTs. VAT seems to be the most relevant tax issue in relation to NFTs currently, not only in the UK, but also in the EU.

Three main questions arise in this regard: first, which transactions are subject to VAT? In general, transactions involving NFTs are electronic services and should, therefore, be subject to VAT. Second, where is the place of supply? Given that NFT-related services are electronic services, the place of supply should normally be where the consumer belongs (which seems to be a compliance nightmare for platform services). Finally, who has the obligation to pay VAT (the platform or the person using the platform running his/her business)? In the UK and the EU, the primary obligation will generally be on the platforms facilitating the buying and selling of NFTs, subject to limited exceptions. It may be possible that a tax authority could try and look behind this at the individuals trading on the platform, but this issue isn’t entirely clear. However, the platform (provider) should be obliged to collect VAT from a practical standpoint.

Lisa Zarlenga, co-author of the book Taxation of Crypto Assets, focused on the income tax consequences and reporting obligations concerning digital assets in the United States, the most relevant topics for US tax lawyers currently (the US does not apply VAT).

In general, digital assets are treated as property for tax purposes in the US. If someone spends or transfers digital assets, this should result in a taxable exchange. The creation of digital assets should be subject to ordinary gains taxation upon sale, as a self-created work. If the activity increases to the level of a trade or business, the creator may be able to deduct ordinary and necessary expenses. For secondary sellers, the sale of digital assets should also lead to taxable capital gains (the sales price basis). In case NFTs are treated as collectables, the applicable income tax rate is 28 per cent (instead of 20 per cent). In 2023, the Internal Revenue Service (IRS) introduced guidelines on the treatment of NFTs as collectibles and intends to utilise a ‘look-through’ approach.

From a reporting perspective, the Infrastructure Investment and Jobs Act 2021 already extended the standard reporting regime to digital assets and new regulations are proposed, to be applicable in 2025. Under the proposed regulations, the determination of where a sale happens depends on the broker’s status rather than the physical location of the digital asset sale. As a general rule, a non-US payor or non-US middleman with respect to a sale that is made on behalf of a customer at an office outside of the US is generally excluded from the definition of a broker and not subject to broker reporting. Nevertheless, the definition of a broker is very broad, including any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.

Giorgio Vaselli talked about the new Italian tax regime for crypto-assets (effective as of 1 January 2023), which has a far-reaching scope, covering personal and corporate income taxation, tax reporting, stamp duty and an annual tax on the year-end value of crypto-assets. New comprehensive guidelines recently issued by the Italian tax authorities also include treatment from a VAT perspective.

Crypto-assets, acknowledged by the Italian tax authorities, are payment tokens, security tokens, utility tokens and NFTs. For income tax purposes, the exchange of NFTs (crypto-assets) with other crypto-assets that have the ‘same characteristics and functions’ is disregarded.

The new rules apply to the income of NFT users (eg, consideration for the subsequent sale of NFTs), which should be treated as income from crypto-assets and subject to a 26 per cent final substitutive tax. However, the new rules should not apply to the income of NFT creators (eg, remuneration for the transfer of NFTs to the online marketplace), which should be treated as professional income subject to an income tax up to approximately 45 per cent. A tax regime aimed at attracting high-net-worth individuals to relocate to Italy may be beneficial in case of conversion of crypto-assets (such as NFTs or cryptocurrencies) to fiat currencies, to be assessed on a case-by-case analysis.