VAT and the Metaverse: Taxing events in a virtual world

More On: metaserve

As more people use the metaverse, more events will be held in virtual reality. Stripe's Aleksandra Bal talks about what the EU VAT rules say about events that happen entirely in the metaverse.

"Metaverse" is a new word that people are talking about on the internet. People are excited about the idea of a 3D virtual world where people can work, play, and socialize. The term "metaverse" was first used by Neal Stephenson in his 1992 book "Snow Crash." After Facebook changed its name to "Meta" in October 2021, it became a lot more popular. The metaverse soon became a topic of conversation for many tech companies. They talked about what they thought the metaverse could do for them.

The metaverse has a lot of power to change the way online meetings and virtual events are run. This is because the metaverse is so immersive and flexible that it could be used to host events of any size and type, from small office meetings to large-scale meetings. When we meet in the future, we may choose to use virtual environments where we can talk to other people's avatars instead of traditional conferencing tools.

During this virtual world, how does value-added tax fit into the mix? In light of the growing popularity of metaverse events, there is a question about whether tickets to virtual events should be taxed like tickets to physical events, or if they should be taxed like any other digital service.

Service or event?

The European Union's VAT law says that "electronic services" are services that are delivered over the internet or on an electronic network and that are mostly automated, requiring little human intervention, and impossible without information technology.

Web-based events that require a lot of real-time human involvement from the organizers (like, say, a virtual conference with live sessions) aren't likely to qualify as this type of event. Online exhibition: This is an example of a virtual activity that could be a digital service. The organizer lets virtual users enter a certain virtual location but doesn't interact with them in real time. As far as VAT is concerned, it doesn't matter whether or not a live event would allow people to interact with each other in real time. The involvement of the supplier is what is important for VAT purposes.

The EU VAT law has a special rule for people who want to go to events. The question arises if this rule can also be used for an event that only happens in the metaverse. This is because this rule was originally made for physical events. The question is whether or not VAT can be charged on virtual activities.

The EU VAT law doesn't say what a "event." Fortunately, the Court of Justice of the European Union was able to give some help with this concept (CJEU). C-647/17: The CJEU ruled that "admission to events" is not the same as the right to go into a place. Instead, this term refers to the right to participate in an activity, like taking a course or going to a seminar. In other words, you don't need to go to a specific place to participate in an event; what matters is that you show up.

Advocate General Eleanor Sharpston also talked about some other characteristics of events in her opinion about the same case. These include events that are planned in advance, take place over a short period of time, and have a specific focus. This means that if metaverse events are short, uninterrupted, and planned in advance, they may be counted as events for EU VAT purposes, even if they aren't.

We now know that activities in the metaverse can be classified as either events or digital services from a VAT point of view. Let's take a closer look at how each category is taxed.

Treatment of digital services for tax

Digital services are taxed in the country where the customer is set up, has a permanent address or usually lives under EU VAT law. It doesn't matter if the customer gives the seller its VAT identification number (business-to-business, B2B, sale). The seller doesn't have to charge VAT because of the reverse charge mechanism. This means that the customer has to pay VAT on the sale.

If digital services are bought for private use (B2C, or business-to-consumer, sale), the seller needs to know where each customer is so that he or she can charge the correct tax rate. This could be done based on things like your billing address, bank account information, or IP address.

Treating Events as Taxed

In the current EU VAT rules, there is a special rule for admission to events. This rule says that admission to events is taxed in the country where the event is held. This rule may be easy to follow in the real world, but it doesn't seem to work well in virtual reality, which doesn't have a connection to a specific place where things happen.

As event organizers can be in a lot of different countries, it may be hard to figure out which one should be the place where the event takes place.

The European Union realized that virtual events are taxed the same way as physical events, which makes event organizers a lot more confused about the law. They came up with new rules that will have to be put into place by the member states by 2025.

It will now be easier to figure out how to tax virtual events under the new rules. They will not be sold in the country where they happen, but always in the country where the customer lives. This will make them more in line with how digital services are taxed. In B2B transactions, there will be no tax charged. In B2C sales, event organizers will charge tax at the rate of the customer country.

Conclusion

Companies that host virtual events will be happy to see the new rules. Once they are in place, it won't be necessary to go through a complicated process of figuring out where a virtual event takes place in the real world. People who pay to go to virtual events will have to pay taxes in their own home country, which is already the case for all kinds of digital services, like email.