When companies implement the transition to the metaverse, they must initially carefully consider indirect taxes (such as corporate value-added tax and value-added tax) and the taxation impact of indirect taxes. While digital transformation will always move much faster than tax laws can be incorporated, there is still an opportunity to be at the forefront of business processes in a metaverse environment.

Deep level

In the metaverse concept, more and more businesses are working hard to create beings. As the metaverses continue to develop, she is playing online two-player battles, cryptocurrencies, and irreplaceable currencies. (NFT) integrates virtual reality technology into a brand new immersive digital experience for customers. Although the metaverse concept initially seemed to appeal to companies with long-term reputations in the digital space, a large number of retail companies and fashion brands are gradually converting to the metaverse concept. They see sales leads and new advertising opportunities for digital and physical "products," such as collaborations with gaming platforms that create a human experience. Whether it's a trendy brand selling digital components, or clothes to wear as an avatar (and sometimes even creating digital and physical merchandise at the same time), it's all taxing to consider driving humanized online traffic. Brand cars for travel, and even music artists for online performances. While corporate VAT and indirect taxes such as VAT will be at the forefront of this development, the potential adverse effects of indirect taxes should be carefully considered from the outset. In this article, we wish to give a non-exhaustive overview of some of the high-level taxation layers that expand to the metaverse concept ecosystem.

Indirect tax

Retail brands generally sell physical products to the consumer market; however, in order to allow EU companies to VAT, NFTs, digitized products such as muscles and avatars as accessories, can be said to be giving electronic services, which may bring inconvenience. Same VAT standard. Therefore, companies should feel that the physical wholesale price business can be transformed into a digital retail business in the virtual universe. For example, it is very important to clarify the target points of all virtual customers, and do not have international wholesale channels leading to local offline physical stores in large countries/regions that only charge local VAT rates. The main reason for these problems is that every sale will trigger the headquarters level to request that the company's value-added tax be remitted to the jurisdiction corresponding to the city where the customer is located. Furthermore, a new business concept, such as an industry based on the concept of a virtual metaverse, will have to address the updated tax legislation to describe this development. Therefore, if transactions between individual customers are carried out on various software, there will be adverse effects such as the risk of corporate value-added tax accumulation. For example, such a thing may happen when (re)marketing distinctive "used" digital goods - a concept that was not possible before the introduction of NFT. Enterprises entering the metaverse environment should be aware that children's behavior may also have direct tax adverse effects. For example, a company that buys and leases virtual real estate in exchange for cryptocurrencies in the Metaverse concept may have taxable income on its cryptocurrencies, depending on the tax laws of the jurisdiction in which the company is a tax resident. If a company were to develop its own NFTs in the virtual world and sell them - for example, a fashion company sells unique branded clothing that needs to be worn by avatars - all because of the increased meaning of NFTs. Revenue may also be realized by The tax company receives cryptocurrency in return.

When such profits have to be taxed is an important dilemma. Want to be at the moment of virtual trading? Or the moment the cryptocurrency is converted into Euro or USD? It is even possible to increase the tax on a certain value every year, based on its value at a certain time of the year or the average value of the year. Therefore, when the taxable amount occurs, it mainly depends on where the entity is a tax resident. As a practical matter, one should carefully consider where to establish an industrial entity that will operate in the metaverse concept, and clarify this before the business process begins, to avoid lengthy export tax discussions with the tax bureau. However, this entity may not simply be taxed as a tax resident. In the jurisdiction where the employee hosts the event, a portion of the profits can also be taxed, depending on where the real estate agent/employee hosts the event. Therefore, careful consideration should be given to what activities employees undertake overseas for the entity. Finally, it should be noted that in the transfer pricing aspect of producing combined products, such as clothing that sells additional NFTs in the real world, avatars can also be used in the virtual universe. Under such circumstances, the specific market sales of products are likely to be completed by companies that are tax residents in the United States. For example, companies that develop and design NFT are tax residents in Dubai. Under such circumstances, we need to clarify how much profit should be distributed to the US tax resident company and how much profit should be distributed to the Dubai tax resident company. Of course, selling combined products not only from the point of view of the place of supply, but also whether it is a single supply or multiple supplies, will bring certain indirect tax risks.

Summary

In general, when it comes to the net inflow/outflow of funds in the metaverse ecosystem in the "real" world, data trends will always be faster than tax laws, and may definitely raise more questions than answers. However, this lack of picture quality of laws and regulations is likely to be interesting for a short time, but it also creates an opportunity to actively cooperate with the tax bureau and lead the business in the Metaverse environment.