Table of Links Abstract and 1. Introduction Abstract and 1. Introduction Bitcoin and the Blockchain 2.1 The Origins 2.2 Bitcoin in a nutshell 2.3 Basic Concepts Crypto Exchanges Source of Value of crypto assets and Bootstrapping Initial Coin Offerings Airdrops Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.2 Smart Contracts 7.3 Tokens 7.4 Non-Fungible Tokens Decentralized Finance and 8.1 MakerDAO 8.2 Uniswap 8.3 Taxable events in DeFi ecosystem 8.4 Maximal Extractable Value (MEV) on Ethereum Decentralized Autonomous Organizations - DAOs 9.1 Legal Entity Status of DAOs 9.2 Taxation issues of DAOs International Cooperation and Exchange of Information 10.1 FATF Standards on VAs and VASPs 10.2 Crypto-Asset Reporting Framework 10.3 Need for Global Public Digital Infrastructure 10.4 The Challenge of Anonymity Enhancing Crypto Assets Conclusion and References Bitcoin and the Blockchain 2.1 The Origins 2.2 Bitcoin in a nutshell 2.3 Basic Concepts Bitcoin and the Blockchain 2.1 The Origins 2.1 The Origins 2.2 Bitcoin in a nutshell 2.2 Bitcoin in a nutshell 2.3 Basic Concepts 2.3 Basic Concepts Crypto Exchanges Crypto Exchanges Crypto Exchanges Source of Value of crypto assets and Bootstrapping Source of Value of crypto assets and Bootstrapping Source of Value of crypto assets and Bootstrapping Initial Coin Offerings Initial Coin Offerings Initial Coin Offerings Airdrops Airdrops Airdrops Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.2 Smart Contracts 7.3 Tokens 7.4 Non-Fungible Tokens Ethereum Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.1 Proof-of-Stake based consensus in Ethereum 7.2 Smart Contracts 7.2 Smart Contracts 7.3 Tokens 7.3 Tokens 7.4 Non-Fungible Tokens 7.4 Non-Fungible Tokens Decentralized Finance and 8.1 MakerDAO 8.2 Uniswap 8.3 Taxable events in DeFi ecosystem 8.4 Maximal Extractable Value (MEV) on Ethereum Decentralized Finance and 8.1 MakerDAO Decentralized Finance and 8.1 MakerDAO 8.2 Uniswap 8.2 Uniswap 8.3 Taxable events in DeFi ecosystem 8.3 Taxable events in DeFi ecosystem 8.4 Maximal Extractable Value (MEV) on Ethereum 8.4 Maximal Extractable Value (MEV) on Ethereum Decentralized Autonomous Organizations - DAOs 9.1 Legal Entity Status of DAOs 9.2 Taxation issues of DAOs Decentralized Autonomous Organizations - DAOs Decentralized Autonomous Organizations - DAOs 9.1 Legal Entity Status of DAOs 9.1 Legal Entity Status of DAOs 9.2 Taxation issues of DAOs 9.2 Taxation issues of DAOs International Cooperation and Exchange of Information 10.1 FATF Standards on VAs and VASPs 10.2 Crypto-Asset Reporting Framework 10.3 Need for Global Public Digital Infrastructure 10.4 The Challenge of Anonymity Enhancing Crypto Assets International Cooperation and Exchange of Information International Cooperation and Exchange of Information 10.1 FATF Standards on VAs and VASPs 10.1 FATF Standards on VAs and VASPs 10.2 Crypto-Asset Reporting Framework 10.2 Crypto-Asset Reporting Framework 10.3 Need for Global Public Digital Infrastructure 10.3 Need for Global Public Digital Infrastructure 10.4 The Challenge of Anonymity Enhancing Crypto Assets 10.4 The Challenge of Anonymity Enhancing Crypto Assets Conclusion and References Conclusion and References Conclusion and References 7.4 Non-Fungible Tokens Non-Fungible Tokens represent unique and non-interchangeable assets on a blockchain. The ownership of an NFT is usually established on the blockchain through a smart contract. The purported underlying asset in an NFT can be anything ranging from a piece of art, an antique piece, real-estate, music etc. Some of the famous NFT sales like the NFT of the first tweet by Jack Dorsey and the “Everydays - The First 5000 Days” NFT by Beeple created lot of buzz and increased the interest in NFTs. NFTs are enabling content creators and sellers of unique non-fungible items or assets to connect directly with the users. NFTs are an integral component of various metaverses where a lot of eCommerce takes place through NFTs. For example, unique land parcels in metaverses like Decentraland are essentially NFTs which can be bought or sold in the metaverse using crypto assets. The non-fungible nature of NFTs gives them value, in case of crypto assets like Ether, every Ether denomination is same and completely fungible. On the other hand, NFTs like the NFT of the first tweet by Jack Dorsey are unique. ERC-721 is the token standard for Non-Fungible Tokens on Ethereum. Although, there are other blockchains like Solana which also have a rapidly developing NFT and smart contract ecosystem. In an ERC-721 smart contract the unique NFTs are assigned Token IDs. The process of establishing the ownership of representation of a unique item on the blockchain is known as Minting. The unique attributes of the item are recorded on the blockchain in the smart contract, which assigns a unique tokenID to the item. As the collectibles/artworks are often very large files, the metadata describing the unique collectible and the URL of the actual artwork is provided in the URI (Uniform Resource Identifier) field in the smart contract. This highlights an important fact regarding many NFTs which represent digital artwork that the NFTs usually only store a pointer URI to the URL of the artwork and no art itself on the blockchain. Users can write their own smart contract to mint NFTs, however, many platforms like OpenSea and Rarible provide services to create smart contracts and mint NFTs for a fee. Let us try to understand the ERC-721 framework using the famous Bored Ape Yacht Club collection on the Ethereum Blockchain. On visiting the website of Bored Ape Yacht Club on OpenSea94 we find many unique images of bored apes. To understand how the ownership of these NFTs is recorded and transferred on the blockchain we can click any NFT to find out its current owner’s account address, the address of the smart contract and the TokenID of the NFT. The smart contract holds the information regarding the NFTs and maintains the record of its ownership for each token ID (Unique collectible). The smart contract of Bored Ape Yacht Club on EtherScan can be used to find owner account addresses of each NFT, their URIs as well as ownership history. The transaction history of the smart contract can be seen and if a user goes to the first few transactions, he/she can see the transactions that minted the BAYC NFTs. The transaction for minting a TokenID associatesthe TokenID and other information like the URI (containing the description of the artwork along with the URL of the artwork), with an Ethereum account in the BAYC smart contract. To find where the metadata of the NFT image is stored on the Ethereum Blockchain one can query the smart contract on Etherscan by using the Read Contract Tab on the Contract stub[95]. One can find the following important functions in the smart contract which can be queried to read data without paying any gas on the Ethereum Blockchain. They are listed as below: A) MAX_APES: Defines the maximum number of tokens (Unique Apes) that can be minted in this contract. 10000 for BAYC. B) balanceOf: Returns the number of BAYC NFTs owned by an Ethereum address C) ownerOf: It returns the Ethereum address that owns a specific BAYC TokenID D) tokenURI: It takes token ID as the input and returns the Uniform Resource Indicator which is usually a link containing the metadata of the NFT Thus, an ERC721 smart contract essentially keeps a track of the minted NFTs and the accounts that own them. Every time a new NFT is minted, gas must be paid to record the URI, ownership, and other data on the blockchain. While changing the ownership also, gas must be paid to record the change in the smart contract, along with some consideration if it is a sale or without consideration if it is merely a transfer. As discussed earlier, the token URI usually contains the metadata regarding the NFT which might in-turn contain the URL where the actual digital image is stored. Querying the tokenURI field for any token ID provides the address: ipfs://QmeSjSinHpPnmXmspMjwiXyN6zS4E9zccariGR3jxcaWtq/17XX as shown in Fig. 36 which is address of data stored in Inter Planetary File System - a peer-ot-peer decentralized storage which stores data based on the hash identifier of the item[96]. Accessing the metadata present at the given URI we find a json document which contains the metadata of the NFT as shown in Fig. 37. This is the core of the NFT which lists its characteristics as well as provides the link to the URL of the digital image of the artwork. This URL is a source of potential risk for the NFT as it makes it essentially a pointer to a URL. If the image URL is changed from the unique artwork in a token ID to any random picture, the NFT and the ownership of the image can be altered by a third party hosting the artwork. To mitigate that risk, BAYC uses the IPFS to store the image and metadata. As IPFS is a hash identifier-based peer-to-peer network which ensures that the URI would not change or go offline. Blockchain explorers also provide the transaction history of a particular TokenID since it was minted. For any NFT Token ID the sale and transfer transactions can be seen on the blockchain. The consideration paid in various NFT transactions is also given. However, a relook at the smart contract functions reveals that NFT smart contracts usually have no field for recording the price at which the sale takes place. NFT smart contracts typically do not directly record the price of sale of the NFT within the contract itself. However, they often include functionalities to facilitate the transfer of ownership and may emit events or logs that contain information about the sale, including the price. Also, the owners and intermediate holders of the NFT are merely Ethereum Account addresses which cannot be easily mapped to a real-world identity. When purchasing an NFT, the transaction typically involves two separate components: Transfer of the NFT: This is the actual transfer of ownership of the NFT from the seller's address to the buyer's address. This transfer is recorded on the blockchain and is immutable. Once the transfer is complete, the buyer becomes the new owner of the NFT. Consideration or Payment: This is the payment made by the buyer to the seller in exchange for the NFT. While the transfer of the NFT itself happens on the blockchain, the payment for the NFT usually occurs off-chain. Buyers and sellers typically arrange payment separately from the blockchain transaction using traditional payment methods such as credit cards, bank transfers, or crypto asset transfers. Transfer of the NFT: This is the actual transfer of ownership of the NFT from the seller's address to the buyer's address. This transfer is recorded on the blockchain and is immutable. Once the transfer is complete, the buyer becomes the new owner of the NFT. Transfer of the NFT: This is the actual transfer of ownership of the NFT from the seller's address to the buyer's address. This transfer is recorded on the blockchain and is immutable. Once the transfer is complete, the buyer becomes the new owner of the NFT. Transfer of the NFT: Consideration or Payment: This is the payment made by the buyer to the seller in exchange for the NFT. While the transfer of the NFT itself happens on the blockchain, the payment for the NFT usually occurs off-chain. Buyers and sellers typically arrange payment separately from the blockchain transaction using traditional payment methods such as credit cards, bank transfers, or crypto asset transfers. Consideration or Payment: This is the payment made by the buyer to the seller in exchange for the NFT. While the transfer of the NFT itself happens on the blockchain, the payment for the NFT usually occurs off-chain. Buyers and sellers typically arrange payment separately from the blockchain transaction using traditional payment methods such as credit cards, bank transfers, or crypto asset transfers. Consideration or Payment: This hinders a taxman to find out the income and capital gains accrued to various holders of the NFT (Fig. 38). However, NFT marketplaces like OpenSea in their privacy policy[97] state that they capture the email address, first name, last name as well as the blockchain address and IP address along with mobile device IDs. These can be used by tax administrations and law enforcement to map NFT owner account addresses to natural or juridical persons in tax fraud and money laundering cases. The valuation of NFTs just like any other piece of art can be complex and subjective. NFTs can be wash traded to artificially enhance their prices and laundering money. Various popular NFT marketplaces presently do not capture any KYC information for trading and minting NFTs. This enhances the risk of tax evasion and money laundering in NFTs. The Royal United Services Institute (RUSI) in the UK has published a report[98] that assesses the money laundering risk in NFT marketplaces. The U.S. Department of the Treasury has also published a study[99] on the facilitation of money laundering and the financing of terrorism through the trade in works of high-value art. It finds that emerging digital art forms like NFTs present new money laundering and terror financing risks. The blockchain analytics firm Chainalysis identified 262 users who had sold an NFT to a self-financed address more than 25 times[100]. Another important feature of NFTs is that the creators can earn royalty income from the subsequent sale of the NFT. While minting the NFTs on platforms like OpenSea, the creators can specify the percentage of royalty to be paid for every subsequent sale of the NFT. However, as can be seen in the most NFT smart contracts, there is no field for specifying the royalty percentage. Thus, this specification of royalty is enforceable only when the sale of the NFT takes place on the specific platform. If the NFT is sold on some other platform or through a direct smart contract interaction, the NFT may be transferred without any royalty payment as the royalty specification and payment is not in-built into the NFT smart contract. As multiple marketplaces have multiple royalty payment implementations which may not be compatible, developers have proposed an NFT Royalty Standard - EIP 2981[101] which enables all marketplaces to retrieve royalty payment information for a given NFT and enables marketplace agnostic royalty payments for secondary sales. However, the proposal is not yet implemented and if a marketplace chooses not to implement the proposal, no royalty would be paid automatically for secondary sales. The increase in trading volumes of NFTs has created an ecosystem of Decentralized Finance applications which involve NFT related commercial activity. They enable users to earn passive income besides the royalty income on sales. As NFTs are often unique collectibles, they can be rented out for use by others. For example, a popular and expensive sword or a weapon can be rented by users in an online game or a metaverse. Platforms like reNFT[102] provide NFT rental infrastructure for the metaverse. It allows NFT owners to rent their NFTs for a set amount and time after taking certain amount as collateral. There are also protocols which do not transfer the original NFT but issues an expiring wrapped version of the NFT to the borrower. NFTs can also be staked or deposited into smart contracts in lieu of tokens issued by the platform, which can lend the NFT to generate passive income which is shared with the owners of the NFT. The users can also deposit NFTs to get tokens that are composable and fungible at a ratio of 1:1 and can be used to acquire other NFTs or their fractions, on the platform or staked further. Many services pool multiple NFTs and provide a liquid market for their sale and purchase with a floor price for each NFT. 7.4.1 Legal Status of NFTs 7.4.1 Legal Status of NFTs The basic idea behind NFTs purportedly representing art work, collectibles, real estate etc. is that by owning the NFT on the blockchain one can have property rights in another underlying asset like art or real estate. But what property rights of the underlying asset does the ownership of the NFT automatically transfer to the owner is a matter of debate. The fundamental question is about the property rights that the process of tokenization of a tangible or intangible asset on the blockchain brings with it. Moringiello & Odinet (2022) analysed the legal aspects of tokenization and examined how the token is connected to the underlying asset, if at all, and what does the current legal framework say about it. They argue that NFTs do not have attributes of other tokens like negotiable instruments and bills of lading. They also survey dataset of terms of service from the most prominent NFT platforms to explore their legal effects as compared to the claims. tokenization is not a new concept in law and economics. Various negotiable instruments, securities and deeds are based on the principle that the tokens represent the ownership rights of some other assets. When a user buys an NFT and the NFT is assigned to the blockchain address controlled by the user on the blockchain, it is believed by many buyers that they acquire the ownership and other associated rights in the underlying artwork or collectible just by virtue of acquiring the NFT. The large amounts involved in NFT purchases might prompt a connoisseur of art to assume that the digital work itself has been transferred, whereas the NFT bought by the users essentially contains metadata and not the image itself. Moreover, anything that can be digitized can be minted into an NFT as the process of minting essentially creates a unique TokenID for that digital work of art and records it into a smart contract in the blockchain. Thus, it is technologically possible to mint a copyrighted item for which the user does not have ownership or the copyright to be minted into an NFT purportedly “owned” by the user. The ownership, reproduction and use of an artwork or collectible in most jurisdictions is governed by the copyright law, which may or may not recognize NFTs as a valid deed of transferring the copyright or other rights in the artwork. Thus, it is argued that from a copyright perspective that minting an NFT describing an artwork without authorization might not be clearly a copyright infringement as it can be considered generation of a string of numbers in relation to a work but not reproduction or adaptation of the work itself[103]. Guadamuz[104] (2022) argues that most NFTs do not involve a transfer of rights and in some instances where a user must check a box for transferring rights while minting an NFT, it might not fulfil the requirements of the copyright law of the jurisdiction of the creator of the NFT. He gives the example of Copyright Designs and Patents Act 1988 of UK which requires the copyright agreement “in writing signed by or on behalf of the assignor”. For example, in case of real estate in India the transfer of ownership is governed and effectuated through the Transfer of Property Act. The sale or purchase of any real-world real-estate merely through the transfer of an NFT representing the real-estate would not be recognized as a transfer under the Transfer of Property Act. “in writing signed by or on behalf of the assignor” Moringiello & Odinet (2022) surveyed the terms of service of various leading NFT platforms and found that none of the terms of service provided any clear link between ownership of an NFT and rights in the underlying creative work. One of the terms stated that buyer obtains ownership of “a cryptographic token representing the artist’s creative Work as a piece of property, but” obtains no ownership of the “creative Work itself.” They argue that the only right the owner of the NFT gets by making the purchase is the right to display the NFT. Moringiello & Odinet (2022) reviewed the terms of service of a site SuperWorld which maps the Earth to create virtual land assets which participants can “buy”. The users can buy or sell real estate tokens. The terms of service state that “purchase” of tokens conveys no rights in the underlying art. The users can monetize the property in SuperWorld. Marinotti[105] (2022) argues that although the NFTs used in metaverses are on the blockchain but the constituents that make the metaverse like land and goods exist on private servers which are stored on secured databases running proprietary code. He argues that the metaverse platforms effectively grant the users only access to the digital assets. As the metaverse NFTs have functional use in the metaverse, blocking access or deleting the NFT from the metaverse for violation of terms of service can significantly affect the utility and financial worth of the NFT. A more detailed and comprehensive discussion about the copyright issues of NFTs can be found in an article by James Grimmelmann, Yan Ji, and Tyler Kell[106] which also mentions the case of Spice DAO which involved a dispute over ownership and control of a digital art collection on the Ethereum blockchain. Various tax administrations in recent rulings have also clarified the nature of NFTs. The Spanish tax administration in its ruling V0486-22 on 10th March 2022[107] stated the fact that “the object of the sale is not the illustrations themselves but NFTs, that is, non-fungible tokens that grant the buyer rights of use but in no case the underlying rights to ownership of the work.”. The Norwegian tax administration in its guidance[108] also states that “An NFT will not normally be considered home contents/movable property in this connection, as the NFT in itself is a digital code and not the actual object it is linked to.” These rulings and clarifications can have consequences for direct and indirect tax treatment of NFTs. “the object of the sale is not the illustrations themselves but NFTs, that is, non-fungible tokens that grant the buyer rights of use but in no case the underlying rights to ownership of the work.” “An NFT will not normally be considered home contents/movable property in this connection, as the NFT in itself is a digital code and not the actual object it is linked to.” One interesting perspective on NFTs is to consider them as vouchers, which can be either singlepurpose or multipurpose in nature[109]. In the context of NFTs, single-purpose vouchers refer to tokens that are designed for a specific utility or use case. Once redeemed or utilized, their purpose is fulfilled, and they may lose their value or become non-transferrable. For example, an NFT representing a ticket to a virtual event provides access to that specific event only. Single-purpose NFTs provide a direct link between the digital asset and its owner, facilitating transparent ownership and provenance tracking. On the other hand, multipurpose vouchers in the realm of NFTs refer to tokens that possess versatile utility across various contexts or platforms. These NFTs retain their value and transferability even after redemption, allowing owners to utilize them in different ways or trade them in secondary markets. Multipurpose NFTs may represent a range of assets or rights whose value often depends on factors such as scarcity, demand, and interoperability with different ecosystems. For instance, an NFT representing a virtual land parcel in a metaverse could be utilized for various purposes, such as building virtual structures, hosting events, or generating revenue through in-world activities. Similarly, an NFT representing membership in a decentralized governance platform might grant voting rights, access to exclusive content, or dividends from platform activities. Treating NFTs as single-purpose or multi-purpose vouchers can have consequences for taxation of NFTs from the perspective of VAT/GST. 7.4.2 ERC 1155 Token Standard 7.4.2 ERC 1155 Token Standard A closer look at the ERC-721 smart contracts reveals that an ERC-721 smart contract can be used only to map unique TokenIDs to Ethereum addresses. It cannot hold ERC-20 tokens along with NFTs (ERC721 tokens). Also, there are no functions to transfer the NFTs in bulk. All these shortcomings result in payment of huge amount in gas fees while creating and transferring NFTs. Moreover, there are use cases where more than one copy of a collectible like a weapon or outfit in an online game might be required along with the native ERC-20 token of the game. The ERC 1155 token standard solves this problem and enables the smart contract to hold fungible as well non-fungible tokens. ERC-1155 solves these problems by assigning TokenIDs to each kind of token(s) held by the smart contract, which also keeps a track of their ownership by mapping them to Ethereum addresses. In case of Non-Fungible Tokens, the respective TokenID is mapped to only one Ethereum address, whereas for an ERC-20 token the TokenID can have many tokens issued whose balances are maintained in the smart contract. It also enables the creation of multiple copies of a single artwork or collectible which can be minted in limited quantities and assigned to different users (Ethereum Accounts). For example, an online game can have an ERC 1155 smart contract which can hold the native ERC-20 token of the game as well as collectibles like weapons or armour which are assigned different TokenIDs and available in one or more than one quantity. This can be pictorially represented in Fig. 39 7.4.3 Taxation of NFTs 7.4.3 Taxation of NFTs NFTs are collectibles and can be considered as blockchain representation of various art forms like paintings, music, videos etc. They may also be tokens created purely for acting as tokens for a specific purpose like entry into a concert or represent the position of a liquidity provider in a liquidity pool. The first potential taxable event is the creation or ‘Minting’ of the NFT. The creation of the NFT usually involves recording the metadata and URI of the artwork on the blockchain. As this does not lead to accrual of any income and is merely a process for recording information about the artwork on the blockchain it might not be taxed in most jurisdictions. However, only a few jurisdictions have issued guidance related to taxation of NFTs. The Norwegian tax administration in its guideline has clarified that creating an NFT does not trigger taxation[110]. Also, the transfer of NFT from one account to the other owned by the same person/entity would also not be taxable. The tax treatment of the transactions related to the NFT after minting depend upon the Intellectual Property Rights that get transferred to the purchaser. As discussed above, as buying an NFT does not necessarily transfer all the Intellectual Property Rights associated with the artwork, the first sale of the primary transfer of the NFT may be treated as a license for the purpose of taxation. The secondary and subsequent transactions of the NFT may be treated as a sale as the recipient of the primary transfer would sell all its rights to the recipient of the secondary or subsequent transfer. However, the secondary sale might also require payment of royalty to the owner of the underlying artwork and might also involve issues related to amortization of the basis by the taxpayer. For the seller making the secondary sale it might attract income tax or capital gains tax depending upon the classification of NFTs by the jurisdictional tax administration and the prescribed rates as well as the nature of activity and the period of holding. For example, in the US NFTs are treated as collectibles and might be subject to higher tax rates. However, the tax treatment would depend on the facts and circumstances of each transfer and the rights relinquished and acquired by the transferor and the transferee respectively. The royalty payments on secondary sales might be subject to withholding taxes in many jurisdictions, depending upon the tax residency of the transferor. The lack of sale consideration data on the blockchain as well as the limited ability to map Ethereum addresses to Tax Identification Numbers can make it difficult for tax administrations to collect due taxes. However, as many NFT owners publicly mention their social media handles/IDs it might be possible for tax administrations to obtain the ownership information from such platforms. NFT sales can also be subject to GST/VAT in many jurisdictions as it may be considered a taxable supply of services. For example, NFTs would be considered as digital services as per Council Implementing Regulation (EU) No 282/2011. The individuals or entities involved in trade of NFTs can might be considered ‘taxable person’ for GST/VAT as they carry out an ‘economic activity’ with direct nexus between the supply of service and the consideration. Even NFTs minted for functional purposes like for entry into concerts and restaurants might also be subject to GST/VAT in many jurisdictions depending upon their classification as a voucher, with possible exemptions up to a certain limit. The services offered by various NFT marketplaces for minting and sale of NFTs may also be subject to GST/VAT depending upon the tax residency of the clients. The royalty payments related to NFTs may also be subject to GST/VAT in various jurisdictions as royalties are considered as licensing services in many jurisdictions. GST/VAT liability on royalties received may depend on whether they pertain to the right of using the NFT or the right to resell the NFT. The issues and tax treatment related to place of supply, claiming input tax credit and exemption of supplies made to residents in foreign jurisdictions would be similar to the issues related to taxation of Bitcoin Mining activities. Some tax administrations have already issued rulings and guidance that clarify the tax treatment of NFTs. The Spanish tax administration has clarified that the NFT sales are electronically supplied services and will be subject to VAT, depending on the place of supply[111]. The Belgian tax administration has also clarified that the NFT sale is to be regarded as a service provided by electronic means. If the supply of NFTs is deemed to take place in Belgium standard VAT rates would apply[112]. A striking feature of such rulings and guidance is the presumption of place of supply to exist somewhere in the real world, where a destination tax administration can collect the VAT/GST due. However, the supply of such services in virtual worlds like a metaverse raise fundamental questions regarding the taxability and tax treatment of such transactions. One such example is the judgement of the German Federal Finance Court in a case involving the online platform ‘Second Life’ where the court overruled the judgement of the Cologne Finance Court and concluded that such transactions in virtual world do not constitute participation in economic activity in the real world and are outside the scope of VAT/GST[113]. Despite these uncertainties and issues, it is worth mentioning that the market cap of NFTs is approximately 4 billion USD with all time sales volumes of around 137 billion USD[114] which makes it difficult for tax administrations to overlook the revenues associated with NFTs Author: (1) Arindam Misra. Author: Author: (1) Arindam Misra. This paper is available on arxiv under CC BY 4.0 DEED license. 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page 114> https://www.justiz.nrw.de/nrwe/fgs/koeln/j2019/8_K_1565_18_Urteil_20190813.html https://coinmarketcap.com/nft/ https://opensea.io/collection/boredapeyachtclub https://opensea.io/collection/boredapeyachtclub https://opensea.io/collection/boredapeyachtclub https://etherscan.io/address/0xbc4ca0eda7647a8ab7c2061c2e118a18a936f13d#readContract https://etherscan.io/address/0xbc4ca0eda7647a8ab7c2061c2e118a18a936f13d#readContract https://etherscan.io/address/0xbc4ca0eda7647a8ab7c2061c2e118a18a936f13d#readContract https://ipfs.tech/ https://ipfs.tech/ https://ipfs.tech/ https://opensea.io/privacy https://opensea.io/privacy https://opensea.io/privacy https://rusi.org/explore-our-research/publications/commentary/nfts-new-frontier-money-laundering https://rusi.org/explore-our-research/publications/commentary/nfts-new-frontier-money-laundering https://rusi.org/explore-our-research/publications/commentary/nfts-new-frontier-money-laundering https://home.treasury.gov/system/files/136/Treasury_Study_WoA.pdf https://home.treasury.gov/system/files/136/Treasury_Study_WoA.pdf https://home.treasury.gov/system/files/136/Treasury_Study_WoA.pdf https://www.financialexpress.com/digital-currency/wash-trading-and-money-laundering-observed-in-nfts-report/2497965/ https://www.financialexpress.com/digital-currency/wash-trading-and-money-laundering-observed-in-nfts-report/2497965/ https://www.financialexpress.com/digital-currency/wash-trading-and-money-laundering-observed-in-nfts-report/2497965/ https://eips.ethereum.org/EIPS/eip-2981 https://eips.ethereum.org/EIPS/eip-2981 https://eips.ethereum.org/EIPS/eip-2981 https://www.renft.io/ https://www.renft.io/ https://www.renft.io/ https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html https://www.wipo.int/wipo_magazine/en/2021/04/article_0007.html https://www.weforum.org/agenda/2022/02/non-fungible-tokens-nfts-and-copyright/ https://www.weforum.org/agenda/2022/02/non-fungible-tokens-nfts-and-copyright/ https://www.weforum.org/agenda/2022/02/non-fungible-tokens-nfts-and-copyright/ https://theconversation.com/can-you-truly-own-anything-in-the-metaverse-a-law-professor-explains-how-blockchains-and-nfts-dont-protect-virtual-property-179067 https://theconversation.com/can-you-truly-own-anything-in-the-metaverse-a-law-professor-explains-how-blockchains-and-nfts-dont-protect-virtual-property-179067 https://theconversation.com/can-you-truly-own-anything-in-the-metaverse-a-law-professor-explains-how-blockchains-and-nfts-dont-protect-virtual-property-179067 https://www.theverge.com/23139793/nft-crypto-copyright-ownership-primer-cornell-ic3 https://www.theverge.com/23139793/nft-crypto-copyright-ownership-primer-cornell-ic3 https://www.theverge.com/23139793/nft-crypto-copyright-ownership-primer-cornell-ic3 https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V0486-22 https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V0486-22 https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V0486-22 https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/shares-and-securities/about-shares-and-securities/digital-currency/nft/#:\~:text=The taxable value of NFTs,the value assessment upon request https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/shares-and-securities/about-shares-and-securities/digital-currency/nft/#:\~:text=The taxable value of NFTs,the value assessment upon request https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/shares-and-securities/about-shares-and-securities/digital-currency/nft/#:\~:text=The taxable value of NFTs,the value assessment upon request VALUE ADDED TAX COMMITTEE (ARTICLE 398 OF DIRECTIVE 2006/112/EC) WORKING PAPER NO 1060 VALUE ADDED TAX COMMITTEE (ARTICLE 398 OF DIRECTIVE 2006/112/EC) WORKING PAPER NO 1060 https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/shares-and-securities/about-shares-and-securities/digital-currency/nft/ https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/shares-and-securities/about-shares-and-securities/digital-currency/nft/ https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/shares-and-securities/about-shares-and-securities/digital-currency/nft/ https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V0486-22 https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V0486-22 https://petete.tributos.hacienda.gob.es/consultas/?num_consulta=V0486-22 <https://www.dekamer.be/QRVA/pdf/55/55K0073.pdf - page 114> <https://www.dekamer.be/QRVA/pdf/55/55K0073.pdf - page 114> https://www.justiz.nrw.de/nrwe/fgs/koeln/j2019/8_K_1565_18_Urteil_20190813.html https://www.justiz.nrw.de/nrwe/fgs/koeln/j2019/8_K_1565_18_Urteil_20190813.html https://www.justiz.nrw.de/nrwe/fgs/koeln/j2019/8_K_1565_18_Urteil_20190813.html https://coinmarketcap.com/nft/ https://coinmarketcap.com/nft/ https://coinmarketcap.com/nft/
