Securing the VAT model of a crypto project

Crypto VAT is a central and complex tax issue for companies in the digital asset industry. The hybrid nature of these operations often leads to characterization challenges that can result in significant tax reassessments.

Indirect taxation is one of the most technical areas of tax law. While the Court of Justice of the European Union (CJEU) has ruled that exchanging Bitcoin for fiat currency is VAT-exempt, uncertainty remains for many innovative activities: VAT on NFTs, VAT for CASPs, VAT on staking and lending, or the tax regime for token issuances.

In this context, securing the VAT treatment of crypto activities is crucial. An error in qualification can lead to VAT back-payments spanning several years, the challenge of input tax recovery rights, or even an unforeseen liability for payroll taxes (taxe sur les salaires).

What are the key issues in crypto VAT?

Crypto VAT covers the rules applicable to digital asset operations when they fall within the scope of services or the supply of goods. While some operations benefit from financial exemptions, their exact scope remains a subject of debate and litigation.

Crypto VAT for CASPs

Crypto-Asset Service Providers (CASPs) charging commissions for the purchase, sale, or exchange of crypto-assets are, in principle, subject to VAT. However, these commissions generally fall under exemptions applicable to financial services. Rigorous documentation is essential to secure this position and reduce the risk of reassessment.

Note: This exemption typically entails a loss of input VAT recovery rights and makes the company’s payroll subject to payroll tax.

VAT and Marketplaces

Marketplaces connecting buyers and sellers must, at a minimum, apply VAT to their commissions. However, in certain cases, the intermediary may be presumed “opaque” regarding the transactions. This presumption—which is sometimes irrefutable—leads to VAT being applied to the total transaction volume of the marketplace rather than just its commission. Ensuring transparency in intermediation is a vital challenge for these platforms.

VAT on token and NFT issuances

The issuance of tokens (ICOs, IEOs, utility tokens, NFTs) can be analyzed as a taxable service. However, when the operation constitutes a financing method, it may fall outside the scope of VAT. The distinction depends on the legal qualification of the token, the rights attached to it, and its actual use within the ecosystem. In some cases, the right to deduct input VAT can be maintained even if the sale itself is not taxed.

VAT on mining and staking activities

Mining is generally considered outside the scope of VAT due to the lack of a direct link between the activity and an identifiable consideration. Conversely, staking and lending involve more uncertainty: some analyses treat them as exempt financial services, others as taxable services. In these situations, a tax ruling (rescrit) is often recommended.

Why hire a tax attorney to secure crypto VAT?

VAT is one of the most heavily audited taxes in France, and the consequences of a reassessment are often severe. The intervention of a specialized tax attorney allows you to:

• Legally characterize flows and develop robust internal procedures defensible before tax authorities;
• Preserve the right to deduct input VAT by ensuring a consistent tax treatment and, if necessary, sectorizing activities;
• Avoid unforeseen payroll tax, which is based on the company’s total wage bill and can significantly increase the tax burden;
• Preempt a crypto tax audit, where VAT is frequently at the center of rectifications.

Our methodology in Crypto VAT

Our team secures the VAT treatment of your crypto operations both proactively and during audits:

• Flow audit and legal classification: Every mission begins with a detailed analysis of economic flows and contracts to determine the strongest qualification. This results in operational recommendations (VAT schemes, invoicing processes, documentation).
• Securing positions via tax rulings: When uncertainty is high, we request VAT tax rulings to obtain an official administrative position. We only recommend this tool when the chances of success are significant.
• Operational support: We assist companies in setting up invoicing and accounting processes and drafting tax opinions to justify their positions to authorities and partners.
• Defense in crypto VAT audits: In the event of an audit or litigation, we defend our clients to challenge unjustified assessments and reduce penalties.

Our track record over the years includes:

• Obtained a tax ruling on VAT for NFTs for marketplaces, issuers, and artists; these rulings were subsequently published by the tax administration, establishing a stable doctrine of general scope;
• Structured flows for a CASP providing a mix of exempt and taxable services (complex single operations);
• Defended a company during a crypto VAT audit, resulting in a substantial reduction of the back-taxes claimed.

Contact us for crypto VAT matters