Drawing on recent case law developments in Germany and Spain, members of ICAEW’s digital assets working party explain why UK businesses and their advisers should take care when applying the VAT rules to transactions involving cryptoassets.
The rapid ascent of crypto markets and the increasing use of cryptoassets in real-world transactions, is forcing tax authorities worldwide to reassess long-standing VAT and tax principles. Traditional indirect tax frameworks may struggle with how to treat cryptoasset transactions, payment instruments and asset transfers – especially as engagement with cryptoassets has evolved beyond speculative trading into everyday economic activity. This article highlights two key international developments in the cryptoasset space.
Non-fungible tokens
We begin with Germany, where, in a 2025 judgement (case reference 5 K 26/24), the Lower Saxony Tax Court addressed for the first time the VAT treatment of trading in non-fungible tokens (NFT) under German VAT law. The case involved a domestic sole proprietor (the plaintiff) who sold NFTs almost exclusively on the global marketplace, OpenSea. The plaintiff argued that his sales were not subject to VAT because the buyers could not be identified for VAT purposes. His sales were not subject to VAT because the buyers could not be identified for VAT purposes.
What are NFTs?
The House of Commons Library says that:
“NFTs are unique digital tokens that represent ownership of a specific asset, often digital art, music, or in-game items. They use blockchain technology to verify uniqueness and ownership.”
The plaintiff said that due to the pseudonymised nature of the wallet addresses, it was impossible for him to identify the buyers, and as such, the services were being provided to OpenSea. On this basis, the transaction would be considered outside the scope of VAT. However, the German tax authority disagreed, stating that VAT at the standard rate (19%) should apply.
Ultimately, the court disagreed with the plaintiff’s claim that VAT was not due on the basis that the identity of the buyer was unknown. Furthermore, the court stated that because the taxpayer was unable to substantiate that the transaction was business-to-business (B2B), the place of supply should be determined under the business-to-consumer (B2C) rules for electronically supplied services, making the place of supply where the consumer belongs. The plaintiff was unable to evidence that his buyers were resident outside Germany, so the court estimated that half of the disputed sales were made to German customers and would be subject to VAT.
Why it matters
This ruling is significant because it addresses a recurring issue in relation to cryptoassets: can a VAT liability apply where the counterparty identity is obscured? The court's answer in this case was yes: pseudonymity did not take the supplies outside the scope of VAT.
UK and EU VAT rules confirm that online marketplace operators, in most cases, are liable for VAT on supplies of electronically supplied services on their platform. However, that deemed-supplier treatment did not apply in this case: the court found the seller remained the supplier because the sales took place peer-to-peer on a decentralised blockchain rather than through a portal such as an app store. Either way, reasonable steps must be taken to confirm with whom the VAT liability lies and to confirm the place of belonging of their customer.
Cryptoassets as legal tender
One of the most consequential recent developments stems from a binding ruling from the Directorate-General for Taxation (DGT) in Spain, V0935-25, where it was found that cryptoassets used in a property transaction are not legal tender and should be treated as intangible assets, rather than money.
Under Spanish law, the only legally recognised currencies are the euro and other official state currencies recognised under EU and national law. The DGT has confirmed that Bitcoin, Ethereum and similar cryptoassets do not qualify as currency and are considered intangible assets.
While contracts are permitted to be settled in cryptoassets, this contractual freedom does not impact their tax treatment. On this basis, the DGT concluded that a property acquisition funded with cryptoassets is not a conventional sale for monetary consideration, but a barter arrangement. The transaction is therefore analysed as follows, with each element of the transaction constituting a separate taxable event:
- a transfer of real estate by the seller, subject to local taxes on property; and
- a transfer of cryptoassets by the buyer, subject to local tax implications for the seller.
By treating an ‘in-kind’ crypto payment as a barter transaction, it gives rise to multiple taxable events rather than a single, straightforward payment transaction.
Why it matters
This is not a VAT case. However, it is interesting from our perspective as it demonstrates that the tax treatment is evolving as awareness of cryptoassets grows, and that the approach taken can differ between taxes.
The DGT’s position of treating cryptoassets as an asset rather than currency departs from earlier administrative thinking in the VAT realm. The previous DGT position had equated cryptoassets to foreign currency for VAT purposes, aligning with EU VAT principles derived from the Hedqvist case (where the exchange of Bitcoin for traditional currency was treated as a VAT-exempt financial service – see ICAEW’s earlier article).
This dichotomy underscores a broader interpretative tension for VAT. In some cases, tax authorities have accepted that cryptoassets may be treated akin to money or a financial instrument and, therefore, exempt in some contexts. However, in others they have been treated as an asset or a form of a barter arrangement – in which case, VAT is charged on the underlying supply based on the fiat currency value of the exchange tokens at the transaction date.
UK implications
These developments demonstrate that the indirect tax treatment of cryptoassets remains both jurisdiction-specific and highly sensitive to legal characterisation. In the UK, the judgement of the Upper Tribunal in Mandarin Consulting Ltd v HMRC [2021] UKUT 0292 (TCC) reaffirms a supplier’s obligations when treating a supply as outside the scope of UK VAT.
In this case, the Upper Tribunal ruled that the company ultimately failed to produce sufficient information proving that its customers were usually resident outside the EU. As a result of this, Mandarin’s consulting services were subject to VAT at 20%.
For UK businesses, this raises important parallels with the place of supply rules and customer identification obligations in digital services, especially where automated smart contracts may perform a service but VAT compliance hinges on documentation/evidence relating to identifying who the customer is and where they belong.
The Spanish approach to a cryptoasset-funded property transaction illustrates how quickly the use of cryptoassets as a means of payment can be recharacterised as an exchange of assets, triggering additional tax liabilities – and how important it is to check whether a UK transaction settled in cryptoassets will be a barter transaction for UK VAT purposes. Currently, HMRC’s guidance (CRYPTO45000), which is marked as “provisional pending further developments, in particular, in respect of the regulatory and EU VAT positions”, notes that “when exchange tokens are exchanged for goods and services, no VAT will be due on the supply of the token itself”. The position remains unclear on other types of tokens.
Together, these developments highlight a broader trend: tax authorities are becoming more assertive in applying indirect tax rules to cryptoassets.
Caution needed
For UK taxpayers, the key message is one of caution rather than prohibition. While HMRC guidance exists for exchange activities and exchange tokens, there is no guarantee that the current interpretation will remain static as cryptoasset use cases expand into areas such as real estate, digital services, and tokenised assets. The absence of bespoke VAT legislation does not mean there are no VAT risks, so businesses need to carefully navigate the existing VAT rules, both domestically and internationally.
Authors: Members of ICAEW’s digital assets working party
