ECJ on virtual currencies in online games

Facts and questions referred

Žaidimų valiuta's business activity consisted of purchasing and reselling the virtual currency known as "gold" from an online video game called "Runescape" by exchanging it for conventional currencies.

The referring Lithuanian court wanted to know whether Žaidimų valiuta's transactions were exempt from VAT as transactions relating to currency, banknotes, and coins that are used as legal tender, in accordance with Article 135 (1) (e) of the VAT Directive. If this were to be denied, it should be clarified whether the "gold" was a multi-purpose voucher within the meaning of Article 30a (3) of the VAT Directive.

ECJ ruling

The ECJ refers to its decision of 22 October 2015 in the Hedqvist case (C-264/14), according to which a financial transaction only exists if the currency in question is accepted by the parties involved in the transaction as an alternative means of payment to legal tender and serves no other purpose than to be used as a means of payment. However, the "gold" is only used in an online video game and is therefore not a means of payment accepted outside this game for the purchase of real goods or services. This means that VAT exemption as a financial transaction is ruled out.

Nor is it a voucher, as two conditions must be met for a voucher: firstly, it must be an instrument for which there is an obligation to accept it as consideration or part of consideration for the supply of goods or services. Secondly, the goods to be supplied, the services to be provided, or the identity of the possible suppliers or service providers must be specified either on the instrument itself or in the related documents. Even if the second condition were met, the first would not be, because the "gold" itself is equivalent to an electronic service that is an integral part of the game – to put it bluntly, the "gold" does not serve as a voucher for obtaining a consumable benefit at a later date but is the consumable benefit itself. Since there is therefore no voucher, the basis of assessment for transactions in which currencies are exchanged for "gold" for payment purposes must be determined in accordance with the general rule of Article 73 of the VAT Directive. This consists of the total consideration received for the sale.

Analysis

In view of the principles already developed by the ECJ in the Hedqvist case with regard to bitcoins, this decision comes as no surprise. That case concerned the exchange of conventional currencies into the virtual currency bitcoin, and the ECJ had already established that the virtual currency must be accepted by the parties involved as an alternative means of payment to legal tender and could not serve any other purpose. This was the case with bitcoins. However, the ruling provides a useful distinction from other factual constellations.

In Germany, the Federal Ministry of Finance (BMF) endorsed the Hedqvist ruling in a letter dated 27 February 2018 and regulated many other details in connection with cryptocurrencies.

Author: Nadia Schulte