Giulia Cipollini and Roberto Bonomi co-authored this article with Lorenzo Marantonio.

From an Italian legal and tax perspective, there are several issues that need to be addressed with NFTs. The main legal issues arising concern, among others, the financial regulation of trade, cross-border sales, traceability and privacy.

With regard to tax implications, it should be mentioned that, as of now, the Italian Tax Authorities have ruled on the direct and indirect tax treatment of fungible tokens, such as "utility tokens" (fungible tokens granting access to the use of products or services). However, no further clarification has been provided with regard to the peculiar case of NFTs incorporating artworks.

In particular, it has not been ascertained whether works of crypto-art may be qualified as works of art under the relevant tax laws, which apparently only refer to tangible objects of art and other collectibles. In a recent Resolution (no. 303, 2 September 2020), the Italian Tax Authorities excluded the application of the reduced VAT rate to artworks created by an artist through a 3D printer, thus not recognising such 3D printed-works as artworks for VAT purposes.

Similar such uncertainties relate to the tax reporting obligations of NFT holders. As a general rule, Italian tax residents should report all artworks held abroad in their annual tax returns. In the case of NFTs, it is not so straightforward to discern the conditions to be met for such artworks (assuming they can still be treated as such) to be considered as held abroad. One possible solution could be that of taking into account the location of the server on which the NFTs are stored.

The legislator, as well as art dealers and their advisors need to be poised to meet such new challenges of technology. The market for NFTs is burgeoning and we trust that Italian law-makers will bring more clarity with regards to the tax issues arising thereof.

Originally Published 14 April, 2021

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