Virtual Worlds, Real Money: Tax Issues in the Metaverse

Abstract

When it comes to the tax world, the starting point is that international tax law does not currently give any special status to a meta realm as a distinct jurisdiction. The metaverse is not a term of art recognised by tax law. However, what we are likely to see is a change in business models and behavioural patterns, leading to different kinds of taxable events becoming either more or less prominent. Tax law may not inevitably change but the tax issues of the day will.

In this article, we highlight three broad business models that are likely to feature prominently in the metaverse: 1) platform operators; 2) purely digital, omni-channel, and hybrid marketing businesses; and 3) individuals participating in the gig and platform economy. Each of these models raise their own direct and indirect tax issues, making it a good idea for tax authorities to start reviewing their existing systems to ensure that they are well-adapted for taxing the metaverse economy. In particular, issues such as digital permanent establishments, digital services taxes and indirect taxation for digital goods and services should be carefully studied.

In BEPS Action Plan 1, the OECD stated that it is not possible to ringfence the digital economy from the rest of the economy for tax purposes as the digital economy is rapidly becoming the actual economy itself. Subsequent developments have shown that things may not have been quite as "impossible" as initially stated. Nevertheless, the question arises whether there may come a point of time in the future where the metaverse economy may "become the actual economy itself".

Keywords: taxation, taxation law, tax law, metaverse

JEL Classification: K34, F38, H2, H20, H24, H25, H26, H27, H29