Lower Saxony Tax Court, judgement of 10 July 2025 – Ref. 5 K 26/24, final and binding.
The parties involved are disputing the VAT treatment of trading in non-fungible tokens (NFTs). NFTs were also popular products on the crypto market last year because they offer artists the opportunity to make works of art available to a wide audience in a new way. NFTs are cryptographic tokens that are generated by a blockchain as a special type of distributed ledger technology (DLT) and are unique rather than interchangeable or fungible. An NFT can only be acquired as a whole and only exists once. From a tax perspective, there are numerous unresolved problems with the interface between the artist and the company generating the NFT, the minting, the sale of the NFT for cryptocurrency or via external platforms. Some of these problems were the subject of the final decision by the Lower Saxony Fiscal Court.
Facts of the case
In 2021, the plaintiff, a sole trader, traded NFTs as collectibles via various internet platforms. He was a reseller and used platforms such as OpenSea and Rarible for his trading. The transactions were processed via smart contracts on the Ethereum blockchain. The plaintiff taxed the transactions at the reduced tax rate of 7 per cent in accordance with Section 12 para. 2 no. 7 lit. UStG (copyright), which the tax office considered to be incorrect and applied the standard tax rate. In support of his claim, the plaintiff took the view, contrary to his VAT returns, that the trade in NFTs was a non-taxable transaction. In the absence of an identifiable service recipient, there would be no exchange of services within the meaning of Section 1 (1) no. 1 UStG. Trading in NFTs generally takes place as an exchange transaction between two wallets by means of a smart contract on a decentralised blockchain. A VAT ID number would not be provided by the purchasers of the NFTs. Due to the pseudonymisation of the wallet addresses and the partial anonymity, none of the contracting parties would be able to identify the counterparty or determine its location. There is also currently no possibility of obtaining information from the operators of the blockchains via requests for information or similar. The FA and the tax court did not agree with this view.
From the reasons for the decision
The tax court dismissed the claim. The plaintiff’s NFT transactions were not supplies, but other services pursuant to Section 3 para. 9 sentence 1 UStG, whereby the recipient of the service could be identified via the blockchain. Purely digital assets such as the traded NFT collections are not tangible goods and are also not covered by Art. 15 of the VAT Directive.
In the case in dispute, these services were also not provided via a portal such as an app store in accordance with Section 3 para. 11a sentence 1 UStG, but outside of such a portal on a decentralised blockchain database.
The services are to be categorised as electronically supplied services that are taxable at the place of residence of the recipient. However, the plaintiff had not been able to provide sufficient evidence that the recipients of the services were domiciled abroad, which led to an estimate of the domestic turnover. Due to the worldwide use of the trading platforms and the plaintiff’s insufficient co-operation in determining the place of residence of the recipients, the court estimated the taxable domestic turnover at 50% of the total turnover. In the case in dispute, the plaintiff did not have a VAT ID number or comparable certificates from the recipients of the NFT, so that it could be assumed that he had provided his services to non-entrepreneurs. The place of supply was therefore to be determined in accordance with sec. 3a para. 1 UStG.
The transactions were rightly subject to the standard tax rate by the tax office, as no tax exemption pursuant to Section 4 No. 8 UStG or application of the reduced tax rate pursuant to Section 12 para. 2 UStG was justified. NFTs were not securities and the conditions for a tax reduction due to copyright transfers had demonstrably not been met.
The authorised appeal was not lodged by the plaintiff.