Having approached the issue of NFTs from a technical point of view, we wish to approach the non-fungible tokens by analyzing their financial and legal framework and the VAT system.
There are many questions we put to the lawyer. Giovanni Ascilia partner at the DLA Piper Global Law Firm.
To shed more light on NFTs, can we say that NFTs do not have the same financial framework as cryptocurrencies? From a financial point of view, what are they absorbed in?
At the moment, there are no official clarifications regarding NFTs, while the Court of Justice (Case C-264/14, Judgment of October 22, 2015) and the Financial Department (among other things, Ministerial Decision) have expressed their opinion on cryptocurrencies. RM 72/2016). It can be said that while sharing the underlying technology (blockchain), we are talking about cd. Tokens are viewed differently: at the domestic level, transactions involving cryptocurrencies are ‘assimilated’ as being linked to ‘foreign currencies’ while unfair ones are considered, although there is no explanation, by most digital product. This qualification, for example, has immediate consequences for VAT purposes, where an NFT transfer qualifies as a supply of services rendered by electronic means in accordance with Art. 7 of EU Regulation No. 282/2011.
It is still in the field of value-added tax, at the level of the European Union, as evidenced by the recent working paper of the European Commission No. 1037 of February 24, 2022, the characterization of cryptocurrencies as “currencies” (and thus, for example, subject to the VAT exemption regime stipulated in Article 135 of the VAT Directive) is prevalent (Greece and Romania do not seem to have confirmed this setting until Now) while there are still no jobs on NFTs.
What are the determinants of NFT taxes?
First of all, it is necessary to understand what nature is and what rights the NFT “incorporates” (therefore, the reference to the instructions on the CD. smart contract).
For example CD. The digital twin of physical origin includes some moral rights Legal rights of the latter, such as licenses to use trademarks, which may generate payment streams to reward these licensed rights, which should qualify as proceeds.
Then it is also necessary to consider it the condition From people who create or exchange NFTs: Check if they are people who do business or act as “non-entrepreneurs”. The platforms that allow the exchange of NFTs, often managed externally, play another crucial role.
Finally, a very important aspect is given by the fact that consideration of buying NFT is often in cryptocurrencies and therefore the two profiles are added (in addition to tax implications).
Also for taxes on NFTs, is it possible to distinguish between a professional activity, which can be categorized as the activity of an art dealer or speculator, and a simple private collector who buys a work of art for himself?
Definitely. For example, a sale of an NFT by someone other than the author (which, as mentioned, should qualify for VAT purposes as a “supply of services”) Falls within the scope of VAT Only if the seller/provider is a person who does business or professional activities. Even for income tax purposes, the situation changes because the surplus value generated by the sale of an NFT helps determine income (professional or business) with positive items but after deducting costs incurred during the year. The income link will not allow sales of a private individual to deduct additional costs, in the absence of professional practice of activity.
It should be clarified whether NFT itself can be classified as a fileArtwork. This is certainly one of the most important aspects that shows the need for rules or explanatory statements on the part of the financial management.
Are there different ramifications if the artwork is digitally copied or if I create an NFT for an existing work?
As mentioned, in the first place it is necessary to ask whether the NFT itself can be equated with a work of art. The original digital NFT would suggest that the person doing the first task owns all of the “licensed” rights in the NFT. It follows that in the case of subsequent transfers (secondary sales), it is likely that he alone will be entitled to the royalties associated with these licensed rights. In the case of the NFT twin of physical labor, it is reasonable to assume that these flows related to rights license The details are up to the artist: the transferring person will then receive an amount but will have to partly pay royalties according to the terms of a relative smart contract.
How is the sale of an NFT taxed by an artist? What if the company mints an NFT?
For VAT purposes, when certain conditions occur, copyright transfer / license by the artist Excluded from value added tax (Article 3, paragraph 4, letter A), Presidential Decree No. 633/1972). For income purposes, the sale must be part of the professional remuneration (after deduction of fixed deductions for expenses provided by law, art. 53 TUIR et seq.).
The fact that the coins are minted by an outside party may not change the system if the NFT digital asset is, since its inception, owned by the artist. In this case it will be the artist Compensation arising from the sale (Primary and Secondary NFTs) and the cost of the minting service performed by the outside supplier.
Are royalties generated on each transaction – sale of an NFT, after the first transaction, subject to different taxes? Is it important that the fee is paid in FIAT or cryptocurrency?
These are royalties if the payment is equivalent to licenses or copyrights listed in the NFT. The tax implications also depend on (a) where the parties involved in the transaction are incorporated and (b) whether or not these parties conduct professional business activities in their country. In general, paying cross-border royalties in B2B transactions can trigger withholding taxes, the rate of which can be lowered based on double taxation treaties.
The transnational character One element that requires further analysis is the NFT coefficients, since the NFT coefficients are regulated on specific platforms which by definition do not have specific regional roots.
A circumstance that demonstrates that it will also be necessary to have a common international view of the main tax aspects of non-financial tax obligations.
The Cryptocurrency payment The number of tax aspects to be considered increases. For now, it will be an exchange between two types of tokens: a digital product (NFT) and one that can be counted into payment tokens (cryptocurrency), each with their own financial implications for direct and indirect tax purposes.
Is it possible to establish tax control obligations for an NFT owner?
Currently, based on the provisions of the financial management, this obligation exists for cryptocurrencies. This position is confirmed in the last legislative amendment proposal (Bill AS 2572) which, regardless of its outcome, emphasizes the necessity of regulating the matter by law.
NFTs are another type of asset that definitely suits itself plural as well as in Economic Speculation. The provision of a monitoring obligation may be a solution to try to avoid non-tax phenomena as well as to anti-money laundering needs. But this must be done without necessarily resorting to aggressive and acrimonious positions, perhaps encouraging today its inclusion in the Declaration to ensure an adequate regulatory framework in the coming years.
Value Added Tax System and NFTs. What are the applicable prices in the buying and selling process for this digital asset?
As a standalone digital product it must be subject to normal rate 22%if they are regionally relevant in our state. rate 10% The introduction to art objects, due to the characteristic of NFTs, is currently at odds with legislation unsuitable for the era: technology and art (wrongly) seem contradictory. In the recent past (Reply #303/2021), the Finance Department declined an average of 10% for original figurative sculptures, created with 3D computer hardware and software, printed with proprietary FDM printers or through the assistance of a 3D printing company. The works in question will not be created entirely by the author but primarily through mechanical processes, often with the help of third parties.
These are the aspects that must be taken into consideration when conducting tax audits.
What are the relevant provisions in tax legislation?
There are no specific measures in the NFT area. Although the processes and financial implications that revolve around NFT are different, it goes without saying that it would be beneficial to have at least one framework that confirms what the doctrine is and the operators that implement it.
Yours faithfully, an international law firm. Are we really seeing the inclusion of probate provisions related to digital assets, including NFTs?
Yes, and certainly in the near future also from the point of view of succession, confirmations on the subject will be necessary.