VAT treatment of in-game currencies

The CJEU has confirmed that transactions in an in-game currency do not fall within the exemption in Article 135(1)(e) of the Principal VAT Directive for currency transactions: Žaidimų valiuta' MB v Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (Case C‑472/24). The Court also rejected the argument that the in-game currency amounted to a multi-use voucher benefiting from the special VAT rules for such vouchers.

However, the CJEU did not comment on the AG's novel suggestion that a teleological approach should be adopted to the second-hand goods margin scheme to allow such transactions to be taxed only on their margin where the resales of such in-game currencies take place on essentially comparable terms to those of second-hand goods.

Background

The case concerns a Lithuanian person who bought and sold "gold" used as a currency for purchasing various benefits within an online computer game called "Runescape". The person bought in-game gold from players of the game and then on-sold such in-game gold at a profit to other players. They did not charge VAT on their sales and this came to the attention of the Lithuanian tax authorities. The taxpayer appealed the resulting VAT assessment and the courts referred a number of issues to the CJEU.

Currency

The main argument was that the in-game gold was a currency falling within the scope of Article 135(1)(e), which covers "currency, bank notes and coins used as legal tender". Whilst technically the scope of the exemption was limited to "legal tender" and the in-game gold clearly was not legal tender, the CJEU noted that it was accepted in Hedqvist that Bitcoin could fall within the scope of this exemption even though it was not, at least at the time of the decision, legal tender. However, for a non-traditional currency to qualify for exemption it must meet two conditions: (a) the currency must have been accepted by the parties to a transaction as an alternative to legal tender and (b) it must have no purpose other than to be a means of payment.

Applying those conditions, it was clear that the in-game gold could not qualify. "It is apparent from the information provided by the referring court that 'Gold' has no purpose other than to be used within an online video game and that it does not therefore constitute a currency accepted outside that game as a means of payment in order to obtain real goods or services."

Multi-use voucher

The CJEU also considered whether the in-game gold could be treated as a multi-use voucher. In that regard, the CJEU noted that Article 30a(1) of the Principal VAT Directive imposes two conditions for an instrument to be classified as a voucher. "First, the voucher must be an instrument in respect of which there is an obligation to accept it as consideration or part consideration for a supply of goods or services. Secondly, the goods or services to be supplied or the identities of their potential suppliers must be either indicated on the instrument itself or in related documentation, including the terms and conditions of use of that instrument."

However, in this case, it did not appear that 'gold' satisfies the first condition. As the AG noted, since it constitutes one of the elements of an online game, 'gold' is in itself akin to an electronic service forming an integral part of that game and a consumable benefit in itself. As such, the 'gold' does not serve, like a voucher, to procure a subsequent consumable benefit in the form of another as yet unspecified service.

As a result, the CJEU concluded that since 'gold' must be classified as an electronic service, the taxable amount of transactions consisting of the exchange of currencies for that 'gold' must be the full consideration received for its sale.

Comment

The decision that the use of an in-game currency does not qualify as a currency for the purposes of the VAT exemption will not come as a surprise. It is clearly not "legal tender" and doesn't have the features of a cryptocurrency like Bitcoin to make it an equivalent of legal tender.

However, the AG had sympathy for the position of the trader in in-game gold in this case, pointing out that whilst the VAT system only seeks to levy VAT on the added value to transactions, that breaks down in situations where a trader primarily purchases items which have embedded VAT from non-taxable persons, as (potentially) here. The trader buying 100 in in-game gold from a non-taxable person would need to sell it for more than 120 to turn a profit when taking into account VAT added to the sale price. This was exactly the situation that the margin scheme was designed to alleviate by limiting VAT to the net margin. Of course, the second hand margin scheme is limited to certain types of goods (such as works of art, collectors' items or antiques) but the AG suggested that a teleological approach might be taken to Article 311(1) to extend its application to certain services such as in this case. Accordingly, the AG suggested that the CJEU should decide that the VAT Directive should be interpreted, in the light of technological developments, in a broader manner as covering also transferable non-tangible objects, provided that they are traded in legal transactions in the same way as tangible objects provided that such services are traded on a secondary market in a comparable way to regular second-hand goods and typically contain residual VAT. However, the CJEU has (again perhaps not surprisingly) totally ignored this aspect of the AG's opinion, and limited itself only to the specific questions referred.