<strong>Metaverse should apply VAT</strong>

Take a tastier drink and buckle up, because this topic of a fresh German tax court judgment seems dizzying to me.

Imagine that..

You are the lucky one of this world. You drive a red Ferrari sports convertible with a roof lowered to meet friends at the city's most popular golf club and then at your favourite restaurant. After the restaurant, together with your significant other, who looks like the main character of your favourite movie, you go to the after-party in your chic apartment on the top floor of a skyscraper in the city center. The end of the evening may remain the fruit of your own fantasies..

It's all possible because..

Facebook has stated something that is possible for anyone in their new brand Meta.. in the virtual world. However, Facebook is not the only ones who make up METAVERSE. Microsoft, etc. promise similar experiences in their virtual worlds. The Metaverse has different virtual worlds such as: Decentraland, Somnium Space, Cryptovoxels, and The Sandbox. The two underlined ones are currently the most popular, but they are expected to soon emerge like mushrooms after rain. Here's a good BBC video to explain it in a bit more detail. Many people now remain to work remotely after the pandemic and such a VR perspective cannot be ruled out in the not too distant future.

If you want to get even more into what it might look like..

Then watch the great film Ready Player One by the brilliant director Steven Spielberg. By the way, the author of the book, Ernest Klain, has also written a sequel to the first story – Ready Player Two.

What does all this have to do with taxes?

Recently the German tax court assessed whether Metaverse's real estate rental income is subject to real-world taxes. Bloomberg Tax estimates that Metaverse's virtual world real estate turnover is estimated at around €440 million in 2021, which will double in 2022.

There are plenty of tutorials on how you can invest your real money in virtual world real estate. I wrote earlier that across Europe right now, tax administrations are scratching their heads about how to apply VAT to NFTs.

Now a new problem has arisen – is VAT applicable to income from the sale or rental of virtual real estate? And real estate is not the only asset (or services, like Justin Beaver's live concert in Metaverse) that go into the virtual commerce. Initially, in exchange for virtual currency, which can be exchanged for real one.

Snoop Dogg in the Metaverse posted a virtual version of his home where people can also view his NFT collection. Just now, someone has paid 149 Etherium for a virtual yacht in the virtual world, with a market value of EUR 600 000. All this seems as shocking as the victory march of the supposed bubble of virtual currency. However, let's not deviate from the main thing..

So.. are there real taxes of virtual assets?

I think this German court case and the coming ones across Europe will also apply to the uncertainty of taxing NFTs, which essentially seems to be a similar virtual asset as the virtual real estate. In essence, the German tax court said that VAT should not be applied as long as the money remains in the virtual world. However, VAT must be applied when the virtual world money is converted into real-world money. BUT, since the virtual world developer who sold the real estate in question is based in the USA, the place of the transaction is outside the EU and therefore German VAT is not applicable. This means that developers of European virtual worlds or asset re-sellers or service providers must be careful, as they may be subject to VAT on the transactions in question!