The Advocate General (AG) recently opined in the case of Žaidimų valiuta MB (ZV) concerning an assessment by the Lithuanian tax authority of a company which earned in-game gold and sold it to players participating in the game. If the sale of the ‘gold’ was subject to VAT then the company was successful enough to be required to register for VAT.

ZV argued that it wasn’t required to register for VAT on the grounds that the gold it sold should be treated like a fiat or crypto currency and so any income would be exempt from VAT. Alternatively, it sought to reduce the VAT liability by arguing that the gold was akin to a voucher (and outside the scope of VAT) or a second-hand good (so VAT need only be accounted for on the gross profit).

The AG spent some time examining the features of the gold when considering whether it can be treated like legal tender. The scale and complexity of the market for this gold was evident as the gold is frequently bought and sold by many players and dedicated brokers. Furthermore, it was evident that the gold in question, once bought, can be used by players from around the world to buy status updates, access to mini-games or items from other games.

The EU’s VAT exemption (which is replicated in UK law) includes legal tender and is recognised (in the UK and across the EU) to include bitcoins. Crucially, the common factor is that legal tender only has one purpose; means of payment. In this case, the court decided that the gold in this case couldn’t be regarded as a means of payment if it could only be used in the game. Therefore, the court’s opinion is that the sale of the gold can’t be VAT exempt and it was akin to ‘play money’.

It does beg the question, if the gold could be used across more platforms, or it could be used to purchase game merchandise, would the court have found differently?

Having found that the gold was subject to VAT, the court decided that it couldn’t be a voucher on the grounds that identifying a value when the gold could be earned or purchased in a secondary market was not possible. However, the opinion made clear that the EU’s margin scheme for second hand goods (which means a trader only accounts for VAT on the difference between the buying and selling price) was the most appropriate mechanism, albeit with a recognition that this scheme was originally reserved for physical goods, as opposed to virtual goods.

We await the court’s decision with interest. However, in the meantime, it is clear that VAT law needs to catch up with technological advances and gaming companies must bear in mind that in-app purchase innovation might create unforeseen VAT consequences.

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