Aline Augusta de Menezes
Lawyer at Marcos Martins Advogados
The use and trading of NFTs, the acronym for “Non-Fungible Token”, or rather “non-fungible tokens”, has grown abruptly in recent years, especially with world-renowned artists and sportsmen who have started to adhere to a virtual and exclusive collectible item on their social networks, such as little monkeys and dolls full of props.
The taxation of these assets creates a number of uncertainties, but before discussing them, it is important to make a distinction between NFTs and cryptocurrencies.
Cryptocurrencies, which have become very well known in recent years, can be defined as virtual assets that use a very secure cryptographic system and can currently be easily traded on brokers around the world. The technology related to cryptocurrencies has paved the way for NFTs.
While cryptocurrencies are fungible assets, which according to the Civil Code are those that can be easily replaced by another product of the same kind in quality and quantity, NFTs, by their very nature, are unique and cannot be replaced.
Basically, then, we have a simple definition of an NFT as a token (digital certificate) that also uses blockchain technology (the same used by cryptocurrencies), which guarantees security, since it can be seen, confirmed, but never altered by third parties. NFTs are indivisible and capable of registering a property or right over an asset, such as: works of art, photos, game items, songs, an exclusive graphic representation, concert and game tickets, etc.
Although the scenario is not at all new, technological innovations are happening at a speed that is difficult for regulations, standards and rules to catch up with in terms of functionality and impact on social relations, with Brazil being one of the most important countries in the world in terms of the movement of NFTs.
In the tax sphere, it is true to say that NFTs are having an increasing impact, as negotiations involving them generated more than US$17 billion worldwide in 2021 alone. In the absence of specific regulations, the taxation of these assets must comply with the rules already in force in our country and that is where the doubts begin.
The Brazilian Federal Revenue Service, for example, based on the premise that NTFs are non-fungible assets that express a tangible value, susceptible to the calculation of capital gains on disposal, believes that they should be declared – by both individuals and companies – as crypto-assets, on the Assets and Rights sheet.
In the Q&A section on income tax, the RFB clarifies that “Gains obtained from the sale of cryptoassets (including NFTs) whose total sale in the month exceeds R$ 35,000.00 are taxed as capital gains”.
There has also been a statement from the IRS in response to a tax consultation and in the IRPF questions and answers section itself, stating that the exemption for monthly disposals of up to R$ 35,000.00 applies to crypto-currencies, and that the set of crypto-assets disposed of in Brazil or abroad must be considered, regardless of their type (Bitcoin, altcoins, stablecoins, NFTs, among others)”.
The São Paulo State Treasury Department, in its response to Tax Consultation No. 22.841/20, took the view that ICMS (Tax on the Circulation of Goods and Services) should not be levied on cryptocurrencies, as they are not goods, since they are not intended for consumption.
However, in the field of NFTs, the conclusion doesn’t seem to be so obvious, because although these assets have become popular in the virtual sphere, it is certain that they will increasingly generate various implications in the “real world”.
Luxury brands such as Dolce & Gabbana are entering the NFT world. In September 2021, a collection of 9 items from the brand was sold for 5.6 million dollars. The collection included both physical items (such as dresses) and the corresponding NFTs.
And even in the virtual world there are transactions so large that they shouldn’t be exempt from ICMS forever.
This is the case, for example, with an art piece called “Everydays – The First 5000 Days”, created by digital artist Mike Winkelmann, which was auctioned in 2021 for US$ 69 million, the equivalent of R$ 346 million.
It is correct to conclude that the bidder of the work now exercises ownership over it, while the artist has acquired the status of alienator of the ownership of a work of art, so one could speak, in theory, of ICMS taxation, considering that artists can produce several similar works for commercial purposes. If the sale of physical works of art is currently exempt from ICMS, it’s not hard to imagine that states will have to keep a closer eye on this market in the future.
And there are other “underlying assets” to be considered in the real world, such as the sale of tickets by NFTs, whether for concerts or matches in stadiums.
In this context, in order not to increase the enormous legal uncertainty that already exists today, which only harms everyone, there is an urgent need for standardization and analysis of the issue (whether through laws, consultation solutions or normative instructions), since operations with NFTs and other virtual assets have been steadily taking up space in the economy and tend to be intensified with the novelties of the metaverse, which are increasingly close to becoming constant in our daily lives.
