The Administrative Court of Appeal rules that the VAT on the sale of NFTs should be governed by the associated asset.

preTAX has represented a company in proceedings against the Swedish Tax Agency regarding the sale of 3D animations linked to Non-Fungible Tokens (NFTs). The Swedish Tax Agency considered that the primary supply was the NFTs themselves and that the sale should be subject to a 25% VAT. The company, on the other hand, argued that the customer was interested in the 3D animation and that the provision of the NFT and the functions it entails were subordinate to the associated 3D animation. Thus, the supply should be seen as the sale of art, and the reduced tax rate of 6% should apply.

The Administrative Court of Appeal (sw: kammarrätten) opined that a system for verifying ownership generally is considered to have limited value if there is no associated asset for which the ownership is verified. Against this background, the court judged that it was the 3D animations that constituted the primary supply in the company's sales. Therefore, each transaction should be seen as a single provision where the VAT is determined based on the tax rate applicable to the turnover of the associated asset. According to the court, the applicable tax rate in this case is therefore the reduced rate of 6% applicable to art.

Our comments

We agree with the court's conclusion. An NFT is best regarded as a contract that regulates how the sale and ownership of the associated asset are to be governed. The sale of the NFT itself is subordinate to the sale of the associated asset. In other words, it is not the NFT itself, but the associated asset that the customer is interested in, and both the tax liability and the VAT should be governed by what the associated asset constitutes.

The court's decision emphasizes the importance of correctly assessing what the primary supply consists of and what the customer actually requests. From a VAT perspective, this means that although it may be tempting to assess everything digital as electronic services, reality is significantly more complex.

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