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Germany exempts virtual in-game land sales

Payments for digital properties within online games outside scope of VAT

The German Federal Tax Court, BFH, has ruled that sales or leasing for consideration of virtual buildings or land is outside the scope of VAT. The case covered the use of the US-based game, “Second Life”, and charges made to a German-resident gamer.

Gaming not real economic world environment

Since these transactions are not within a real economic world environment, they do not regularly give rise to a taxable supply.  The parties involved are only interacting virtually within online games. In the case under scrutiny, the payments were made by in-game currency. These were used to pay for leased virtual land, and were purely used in-game.

Regarding “renting out”, the German Federal Tax Court justifies this position due to the fact there is no benefit for the service recipient that leads to consumption within the meaning of the harmonised VAT law. This would require an identifiable consumer to be given a benefit that could form a cost factor in the activity of another participant in the economy.

However, if the parties do go on to exchange their gaming currency for real, fiat currency, this is a supply subject to VAT.

The EU review of VAT on crypt-currencies is underway.

BFH, ruling of 18 November 2021, V R 38/19


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