Editorial: VAT Goes Virtual: Security Tokens

In recent years, many have mused on whether substantive EU VAT rules are sufficiently versatile to adapt to technological innovations that disrupt traditional business models. Some national courts applying those rules are apparently not: For instance, the German Federal Tax Court recently decided that the rental of virtual land cannot, in itself, attract VAT, because such transactions do not happen in the ‘real’ economy and therefore allegedly cannot imply a supply of any consumable benefit. The wisdom (and the correctness) of such a decision may be questioned – considering the efforts currently made to develop a ‘metaverse’, such reasoning might well become the new Watson anecdote of future generations of VAT practitioners. But admittedly, in some respects the current EU VAT system clearly was or still is in need of modernization, not only regarding the tax collection procedures, but indeed also with respect to substantive law issues. Examples are the recent reform on the place of supply rules for a virtual provision of certain services, the late and piecemeal inclusion of electronically supplied services in the list of supplies eligible for reduced rates, or the need to clarify and, possibly, amend the treatment of crowdfunding in the light of its increasing tokenization. Notwithstanding the above, it should be acknowledged that in many cases, the harmonized VAT rules are future-proof enough to ‘go virtual’ and produce consistent and reasonable results. Arguably, one such area are blockchain-based innovations in the field of financial instruments, i.e., so-called security tokens or investment tokens. This editorial discusses how they fit into established concepts of EU VAT and how to adequately address some peculiarities in line with established VAT doctrine.