Edited by Alessia Zanatto, Caterina Arfilli, Giulia Fantinato
With the publication of Circular No. 30/E/2023, concerning the tax treatment of crypto-assets (commenting on Article 1, c.c. 126 -147, Law No. 197/2022 – Finance Law 2023), the Italian tax authorities have provided, among the various topics examined, some comments on the VAT treatment of crypto-assets, although not regulated by the aforementioned Finance Law.
As a preliminary remark, the Italian tax authorities have recalled the fact that there is a lack of a specific VAT legislation at the domestic and EU level and the necessity, for the time being, to refer to international best practice and guidelines at the European level.
In addition, the Italian tax authorities emphasize how, for the topic under analysis, it is necessary to adopt a look-through approach also for the determination of the VAT treatment of crypto-assets, as well as recommend a case-by-case analysis: this is due to the fact that this is a constantly evolving topic “linked to the use of technologies that are themselves constantly advancing and whose potential developments cannot be imagined at present”. The Italian tax authorities also suggest that it is not the nomen juris attributed to the instrument by the issuer what matters but an analysis of its substance is required.
Notwithstanding the foregoing, without claiming to be exhaustive, the Italian tax authorities have anyway provided more comprehensive guidelines compared to previous clarifications. A case-by-case analysis remains necessary whenever the actual cases and the characteristics of each case do not correspond to the categories of instruments already known and for which an assessment has already been made by the Italian tax authorities.
In particular, a few VAT impacts related to the following phases of a crypto-asset’s life, including related activities/services, were analyzed, without claiming to be exhaustive:
- creation;
- possession;
- trade.
These valuations were carried out for the following cryptocurrency categories:
- cryptocurrencies;
- security tokens;
- utility tokens and hybrid tokens;
- NFT.
Cryptocurrencies
With reference to cryptocurrencies (rectius crypto-assets that concretely function as virtual currency/payment means) and the services related to them, the clarifications provided by the Court of Justice of the European Union (“CJEU”) in its judgment of 22 October 2015, C-264/14 (i.e. Hedqvist judgment) remains essential.
Compared to previous national practice clarifications that referred to this ruling, the Italian tax authorities have provided some – circumscribed – guidance on the determination of the taxable amount. In particular, if a crypto-asset is used to pay for any supply falling within the scope of VAT, it will be necessary to calculate its equivalent value in Euro in order to determine the taxable amount. In relation to the applicable exchange rate, considering the instability of cryptocurrencies, Italian tax authorities consider it reasonable to use the average value recorded on the day of the supply. The Italian tax authorities suggest obtaining this information from the platform responsible for managing the supplier’s e-wallet, where the consideration paid by the customer (and by virtual currency) will be credited.
After stating that supplies connected to cryptocurrency can generally be considered exempt from VAT and that they are covered by Article 10(1)(3) of Presidential Decree No. 633/1972 (when obviously carried out for consideration and in the presence of all the other requirements to consider the supply to be within the scope of VAT), the Italian tax authorities provided a list of supplies typically exempted in this respect:
- supplies such as the exchange of traditional currency for virtual currency as well as the exchange between virtual currencies[1];
- the mining of virtual currencies (if remunerated in the form of fees charged by the miner);
- fees if related to digital wallet services;
- staking.
For the application of the aforementioned exemption, neither the method of payment of the consideration nor the method of its determination is relevant, so long as a consideration can be identified and all the conditions for the application of the tax are fulfilled.
Security token
Always considering that it is not the name attributed to the token that identifies it, since an examination of its real nature is necessary, after ending its discussion on cryptocurrencies, the Italian tax authorities focus on the other types of tokens that are most widespread today, starting with security tokens[2].
When the Security Tokens have the nature of financial instruments, the Italian tax authorities consider the VAT exemption to be generally applicable to the services related to them. In this case, the reference rule is Article 10(1)(4) of Presidential Decree No. 633/1972, when they can be assimilated to the shares, bonds and securities indicated in this provision. Unless the transactions expressly excluded from the exemption by the aforementioned Article 10(1)(4): in particular, “the custody and administration of securities as well as the individual portfolio management service”, which are taxable at the ordinary VAT rate.
Utility tokens and Hybrid tokens
With reference to the utility tokens[3], the Italian tax authorities takes overcome the general assimilation of these tokens to the payment vouchers regulated by Articles 6-bis, 6-ter and 6-quater of Presidential Decree No. 633/1972 – a conclusion already reached previously in the European context with Working Paper No. 1037, which took up the conclusions reached by the VAT Committee on Working Papers Nos. 983 and 993[4].
Indeed, it is increasingly common for certain utility tokens to change their structure and nature after their emission, thus becoming attributable to the category of hybrid tokens[5]. Hybrid tokens are generally in the nature of entitlement securities within the meaning of Article 2002 of the Civil Code.
The Italian tax authorities therefore confirm, expecially for these instruments, the need for an “examination of the specific case in order to establish whether said token is a voucher rather than a payment instrument or other”.
[1]The Italian tax authorities, regarding cryptocurrency exchange transactions, reiterates previous clarifications based on the Hedqvist judgment, identifying the consideration as the “difference between, on the one hand, the price at which the operator concerned buys the currencies and, on the other hand, the price at which it sells them to its customers”.
[2]See Circular for which security tokens are a “type of token representing economic rights linked to the performance of the business enterprise (e.g. the right to participate in the distribution of future dividends) and/or administrative rights (e.g. voting rights on certain matters)”.
[3]See Circular, for which utility tokens are a “type of token representing different rights, linked to the possibility of using the product or service that the issuer intends to realize (e.g., a license to use software after the development process)”.
[4]The Italian tax authorities also remind how utility tokens may, in the presence of the necessary requirements, fall under the application of the “Voucher Directive” (Directive No. EU 2016/1065 of 27 June 2016). The essential elements of vouchers are, specifically: (i) the obligation to be accepted by the potential supplier as consideration or partial consideration for a supply of goods or a provision of services and; (ii) the indication of the goods/services it allows to be purchased or, alternatively, the identification of the identity of the potential suppliers.
[5]See Circular that hybrid tokens are “types of tokens that may fall into one category rather than another. Individual categories of tokens are not mutually exclusive. For example, security tokens or utility tokens may also fall into the category of payment tokens”.
NFT
With regard to Non-Fungible Tokens (“NFTs”), the Italian tax authorities recommend an evaluation of the contractual agreements associated with the NFT itself, understood as the rights, or more generally, the assets it incorporates, as well as the manner in which this instrument circulates. The contractual agreements are usually codified in a smart contract that is self-executing (defined in the Glossary accompanying the Circular as “a computer programme that operates on distributed ledger-based technologies and the execution of which automatically binds two or more parties on the basis of effects predefined by them”).
Therefore, once again, the VAT treatment of NFTs and related activities is not predefined, but it is necessary to analyze what the parties are interested in and what the real function of the token is.
Specifically, the parties of the transaction may be interested:
- in the NFT only. In this case, the related services qualify as electronic services and will become relevant for VAT purposes at the time of payment of the consideration, according to the territoriality rules set forth in Article 7-octies, Presidential Decree No. 633/1972, with the application of the rate typical of generic services;
- also in the underlying (e.g. goods, services or rights) that the NFT represents/incorporates. In this case, the NFT takes on the nature of a purely vehicle with respect to the transfer of the goods, services or rights incorporated in the underlying and thus acquires an ancillary nature. From a VAT point of view, it therefore means that the VAT treatment will tend to follow the rules applicable to the underlying asset. In particular:
- if the underlying asset is an on-chain asset (i.e. a digital native asset), the VAT rules on electronic services will also apply in this case;
- if the underlying asset is an off-chain asset (i.e. non-digital), the VAT rules will depend on the nature – primarily supply of goods vs. supply of services – and any specific characteristics the underlying asset may have.
Lastly, the Italian tax authorities remind that “the rules governing vouchers rather than those governing entitlements may be applicable, provided that the relevant conditions are met, for instance when the NFT incorporates (non-digital) services that the purchaser is entitled to use or when it confers on the purchaser the right to participate in a so-called community”.
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For a deeper discussion, please contact:
Contatta Alessia Zanatto – Partner, PwC TLS Avvocati e Commercialisti