National Tax Agency Shows Important Guidelines on Taxation of NFT Transactions such as Blockchain Games

Present handling of NFT transactions

On the 13th, the National Tax Agency released a document summarizing the general tax treatment of NFTs (non-fungible tokens). In addition to cases where income tax is levied, guidelines are also provided for cases where consumption tax is applied.

Regarding the (profit and loss calculation) of blockchain game transactions, which are popular both in Japan and overseas, he pointed out, “In-game currency (tokens) are frequently acquired and used, and it is complicated to evaluate each transaction.” The miscellaneous income calculation of the “simplified method”, which calculates the income amount based on the in-game currency (token) and evaluates it all at once at the end of the year, has been approved.

He explained that rewards earned from blockchain games are, in principle, categorized as miscellaneous income and are subject to income tax. However, if the in-game tokens obtained as a reward can only be used within the game, that is, if they cannot be exchanged for assets outside the game, they are not considered taxable.

In addition, it clarified the basic treatment under the tax law for “theft or disappearance of NFT due to unauthorized access”, which was unclear until now.

However, it should be noted that the FAQ only provides answers about general handling, and states that “individual specific transactions may be treated differently from the answers.” For the details of the calculation method at the time of final tax return, it is necessary to confirm with experts and the National Tax Agency.

Some cases are classified as capital gains

If an individual creates an NFT and sells it to a third party (primary distribution), or if a person who purchases an NFT resells it to another person (secondary distribution), the profit is “income tax” is subject to tax.

In this case, the concept is classified as “transfer of rights related to viewing digital art”, and the income generated from the transaction is “miscellaneous income or business income” in the case of primary sales, and “transfer income” in the case of secondary sales. is taxed as

In either case, tax is generally imposed on the amount after deducting expenses from income. In addition, it was also clearly stated that what is considered as expenses for NFT creators is the “cost necessary to compose the NFT” from the digital art, and does not include the production cost of the digital art itself.

If you give NFT to an acquaintance for free, the gifted side may not be taxable, but the gifted side may be taxable. On the other hand, corporations are, in principle, subject to taxation.

Regarding the recipient of the gift, the National Tax Agency considers the “content, nature, transaction status, etc.” Gift and inheritance taxes will be imposed after each individual evaluation, he said. If there is a market transaction price at the time of taxation, the decision may be made based on that price.

Losses due to unauthorized access, etc.

This guideline recognizes that “if the purchased NFT is lost due to unauthorized access by a third party,” it will be subject to miscellaneous loss deduction, etc., and clearly states as follows.

Regarding the loss amount, the market price at the time the NFT disappeared, and if the market price is unknown, it is said that “the purchase amount may be used.”

In addition, it explained that NFTs obtained as compensation for services and NFTs given as a gift with the purchase of a certain product are also taxable. It also continues that if the NFT granted by purchasing the product cannot be exchanged for other assets and it is difficult to calculate the market price, the market price of the token will be set at 0 yen.

Handling of consumption tax

The National Tax Agency also indicated the treatment of consumption tax on NFT transactions.

If a person creates an NFT and sells it to Japanese consumers through the marketplace and receives compensation, the NFT creator will be subject to consumption tax.

Also, as a secondary distribution, when selling the purchased NFT to another person, if “a domestic business operator receives consideration as a business”, the business operator will be subject to consumption tax. and continued.

In addition, even if it is a transaction conducted by a salary earner, if the secondary sale of NFT with consideration is repeated, continuous, and independent, it is considered to be a transaction as a business.

Relation:Tax considerations for NFT (non-fungible token) | Contribution

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