Tax Talk: VAT Bytes on the New Block

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When 20th century tax legislation comes knocking on technology’s constantly revolving door, a heavenly outcome can’t be guaranteed. Such tensions are alive and well in the realms of VAT and Blockchain but; before, we dive into the conflicts, let’s explain the concepts.

What is Blockchain?

Traditionally, Blockchain was merely a term used by computer scientists for how to structure and share data.  Now Blockchain is recognised as the front runner of technological innovation. In its simplest form, a Blockchain is a software that allows a network of computers to connect directly to each other without the need for a centralised middleman. They operate similarly to a distributed database, but instead of organising data into tables, data is organised into blocks that are linked together in a chain. With this form of data structure, information can be managed, updated and shared amongst network participants without the risk of data being lost or tampered with, as each network operator works together to run the Blockchain and verify the information stored within it.

This technology is being used to track products throughout supply chains, reduce the costs of cross-border transactions and remittances, mitigate the risks of data breaches and act as an application for copyright protection.

  1. Place of supply

VAT legislation assumes that supplies of services involve a physical location for both the customer and the supplier, as well as an identifiable permanent presence of human and technical resources. These assumptions can be difficult to apply in the world of Blockchain as technical resources are scattered across a decentralised network without a fixed location, making it difficult to identify where the supplier is based.

For example, if an individual purchases data storage via a decentralised cloud storage blockchain such as Filecoin, the purchaser receives cloud storage and their payments are allocated to the facilitators of the Blockchain providing the service. Simple enough? Yes, but what if the facilitators are operating from multiple global locations and the proceeds are split between thousands of blockchain facilitators? Where and with whom does the VAT liability lie?

  1. Real v virtual

In the real world, regulated (fiat) currency generally attracts an exemption from VAT. However, can we automatically assume that this also extends to all  digital assets integrated within a Blockchain?  

The simple answer is no, so much so that the European Court of Justice is being mobilised to rule on such matters. The key takeaway here is that in certain circumstances the same VAT treatment may apply, but this cannot be taken for granted.

  1. Single v multiple supplies

It may sound obvious but before deciding whether an activity falls within the scope of VAT, we need to determine what that activity is. The issue with Blockchain is that because it can facilitate multiple simultaneous transactions, it is difficult to identify whether it counts as a single service (with one VAT liability) or multiple individual separate supplies with potentially different VAT liabilities. For example, if a digital asset acts as a ticket to an event and simultaneously provides ownership of intellectual property or copyright, would this be two independent supplies or a single supply made up of two elements?


VAT legislation is lagging behind technological innovation and needs to evolve quickly if tax authorities are to ensure compliance and maximise their fiscal revenue. There is still a great deal of ambiguity in the disruptive world of Blockchain and digital assets. So, it is essential that businesses are aware of the VAT complexities and take advice before integrating these technologies into their supply chains.

Please contact Natalie Braier or Tyler Grinsted in our VAT team, if you have any queries in relation to this article.