The vision of virtual and real worlds being fully interoperable is still a long way from reality. But with the progress being made by tech giants, the two spaces are becoming ever more integrated – presenting considerable opportunities for business, but also creating tax issues and challenges. After all – where there are profits, the state will want to levy taxes.

Over the past few decades, tax law has developed a system for international companies that largely avoids income being taxed twice or not at all – generally based on whether a company has employees or assets in a given country. But the emergence of electronic services has already led to a change in thinking: Particularly for indirect taxes, the customer’s seat or residence is now often used to determine where a company is taxed. Before the final word on the matter has even been spoken, the rise of virtual spaces such as the metaverse is already creating new tax issues.

The new business models that the virtual world has made possible – and its new assets such as cryptocurrency, NFTs and other tokens – are making for new tax law challenges. It is often not immediately clear what laws currently apply to a given matter. The issue of the tax residence of decentralised autonomous organisations (DAOs) is even more complex. Ensuring correct tax treatment requires carefully examining the level at which services are exchanged and the parties that are involved.

Gleiss Lutz recognised the potential of the metaverse and blockchain technology early on and even has its own office in the metaverse. With our expertise, we are perfectly suited to help business safely navigate the unknown territory that is taxation in the metaverse.

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