In recent years, there have been several rulings concerning various forms of online trading with skins and coins. The rulings show that selling skins and coins in various ways can have major VAT consequences. Most recently, a decision from the National Tax Tribunal resulted in a VAT backcharge of just over DKK 1.5 million when trading skins.
Skins can be described as virtual objects that contain elements such as a special color, decoration for a weapon or clothing for your character, which can also have a function in a game, such as a new weapon or an extra life. These are all known as skins. Such skins can be attractive to players in online games such as Counter Strike. Skins can be contained in closed boxes that are awarded as a reward for playing the game. However, the boxes can often only be opened for a fee.
When trading coins, for example, a CSGO Empire coin is a coin that can be used to either place bets such as roulette and match betting on the website www.CSGOempire.com or to buy Counter Strike skins.
Both skins and coins are widely traded, for example via social media. Payment can be made in various ways, including MobilePay, bank transfer, card payment or payment in cryptocurrency.
Private individuals are liable for VAT on the sale of skins and coins if they are engaged in an economic activity. Economic activity means any activity as a producer, trader or service provider, including mining and agriculture, as well as activities in the liberal professions and related activities. Economic activity means in particular the exploitation of tangible or intangible assets with a view to obtaining income of a lasting nature.
In a binding answer from 2021, the Tax Council found that an online player (gamer) conducted an economic activity by selling skins and was therefore liable for VAT. This was an online gamer who both bought and sold skins via Facebook with payment via MobilePay. He stated that the price of the skins he traded was between DKK 100 and DKK 20,000. The typical trades were in the price range of DKK 3-4,000. He expected to be able to sell for around DKK 500,000 per year. In the Tax Council's binding answer, the reason for VAT liability was, among other things, the scope and frequency of the sales.
The latest decision from the National Tax Tribunal concerned a player who in the period from 2016 - 2019 carried out more than 6,000 outgoing transactions by selling skins to private individuals. Income from the sales amounted to DKK 7,760,529. The sales were made via Twitter and Reddit, among others. The National Tax Tribunal found that the player conducted an economic activity and was therefore liable for VAT.
VAT exemptions
Sales of skins and coins subject to VAT will usually involve a relatively large VAT liability, as the acquisition is typically made without VAT and thus does not qualify for any VAT deduction.
However, neither the sale of skins nor coins is covered by the VAT exemption for financial transactions. The emphasis is placed on the fact that skins and coins cannot be equated with securities or means of payment.
On the other hand, the sale of crypto art, for example, is exempt from VAT as an artistic activity. Crypto-art is digital art (digital images), also known as NFTs (non-fungible tokens).
Electronic services
For VAT purposes, online sales of skins and coins are considered to be the supply of electronic services. This means that no outgoing Danish VAT is payable on the sale of skins and coins to private individuals established in other countries.
For sales to private individuals in other EU countries, VAT must instead be paid in those countries. VAT is typically settled using the so-called One Stop Shop scheme.
When selling to private individuals in countries outside the EU, VAT settlement depends on the rules in each country.
However, a prerequisite for not having to pay Danish VAT when selling skins and coins to private individuals established in other countries is that you can document that the individuals are actually established in countries other than Denmark. If you cannot document this, you still risk having to pay Danish VAT on the entire sale.
A word of advice
This article only deals with the VAT rules. Gains from trading skins and coins may also be taxable. In any case, you should seek professional advice.
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