Taxation in the metaverse – Mrvice
The metaverse is a reality that is still under construction, however, it has resulted in significant financial developments.
According to Gartner, by 2026, 25% of people will spend at least one hour in the metaverse. Also, according to the Valor Econômico website, the virtual world makes annual profit rates of 43.3%.
In other words, augmented reality and experience in virtual environments are increasingly gaining ground on the world stage, and its main products are commercial transactions carried out in an electronic environment.
Along with cryptocurrencies, NFTs (“Non-Fungible Tokens” or “Non-Fungible Tokens”) and virtual countries (virtual countries) are some of the types of transactions found in the metaverse that, without any national legislation, fuel heated debates among tax experts.
For NFTs, for example, amounts can reach US$92 million. In 2021, according to the company DappRadar, the NFT market reached a monetary amount of 24.9 billion US dollars, or 130 billion real dollars.
According to CNN, one of the most expensive NFTs in history was “The Merge,” a piece of digital art that was purchased by 29,983 people for a total of $91.8 million.
Virtual land is a type of NFT that guarantees the customer a territorial space within the metaverse, i.e. digital property within the platform. In 2021, the virtual land located in the online world of Decentaland was sold for 2.4 million USD or 13 million R$.
All transactions and large amounts in the multiverse are discussed for tax implications.
In the United States, Linden Lab has announced that it will collect sales tax on monthly subscriptions and virtual lands that exist in its online world. For such actions, the company relies on the court precedent of South Dakota v Mayfair Inc:
South Dakota v. Wayfair was a 2018 US Supreme Court decision that struck down the requirement that a seller be physically present in a taxing state in order to collect and remit sales tax to that state. It expanded the ability of states to collect sales taxes through e-commerce and other distance transactions (TAX FOUNDATION, 2022).
In the European Union, transactions made in the metaverse are subject to VAT. Value added tax (VAT) is charged on consumption and is applied to almost all goods and services in circulation.
In this context, the European Union understands that business relationships that take place in the metaverse are characterized by consumption and the provision of services.
In the national scenario, despite the prediction of taxation (capital gains) for cryptocurrencies from 2021, there is still no law to regulate transactions made in the metaverse. Therefore, as a rule, they are carried out freely.
However, two IRS acts were created to at least partially regulate this virtual commerce:
1. Normative instruction 1888/19 i;
2. Counseling Cosit 214/21.
Normative instruction 1.888/19 of the Federal Tax Administration seeks to regulate the declaration of income tax and the inclusion of digital assets in the document. After reading the guidance, it is clear that the target of its text is cryptocurrencies, however, in the absence of relevant regulations for NFTs and virtual countries, the regulation is applied analogously.
in art. §2 Mandatory information required by the Federal Tax Administration is:
“I – buying and selling;
II – exchange;
III – donation;
IV – transfer of crypto assets to the stock exchange;
V – withdrawal of cryptocurrency from the exchange;
VI – temporary transfer (lease);
VII – payment in kind;
VIII – edition; and
IX – other transactions involving the transfer of crypto assets.”
In §1 there is an indication of the limit for the exemption range, which is R$ 30,000.00 (monthly value of operations, individually or jointly). In other words, if the specified limit is exceeded, the taxpayer must report entries related to virtual transactions.
Cosit Advisory 214/21 established that earnings related to cryptocurrencies that exceed the amount of BRL 35,000.00 will receive capital gain frequency.
Capital gains made from the sale of cryptocurrencies are exempt from income tax if the total value of sales in a month, of all types of crypto-assets or virtual currencies, regardless of their name, is equal to or less than BRL 35,000.00 (thirty-five thousand reais).
Capital gain applies even if the transaction is made using digital currencies, without transforming them into reals, the country’s current currency. In this sense, Cosit 214/21 applies in cases of cryptocurrency exchanges, even with the risk of double taxation.
Regarding virtual land, there is also no relevant regulation in Brazil. Although these are digital property transactions, they do not fall under the ITBI application (Art. 156, II. CF/88). However, based on the ADI 1945/STF analysis, there is a possibility of ICMS imposition, as such a court decision compares software to intangible digital goods and therefore, if transacted, may constitute a taxable event for ICMS.
Therefore, it is concluded that in practice there are still no means for tax authorities to act in the metaverse. However, the quest to regulate such transactions can be seen in the actions of the Federal Tax Administration and prove a trend that will soon consolidate.