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Key takeaways
Non-Fungible Tokens (NFTs), literally translated into French as "jetons non fongibles," are unique digital assets issued and exchanged on the blockchain, belonging to the category of "cryptoassets." NFTs are associated with various domains: art, sports, tweets, music, games... and anyone can acquire them online. They attract a growing number of investors drawn by novelty and seeking to diversify their portfolios. Given the high volatility of these assets in terms of valuation, what is the applicable tax regime for the capital gains that NFTs may generate? What are the investment issues?
A Strict Tax Regime
The legislator has examined the tax regime applicable to these digital certificates, which has raised many questions. Since 2019, NFTs are considered digital assets, and capital gains from their sale by individuals are subject to the regime of Article 150 VH Bis of the General Tax Code (CGI). This means they are taxed as income at a flat rate of 12.8%, plus social contributions of 17.2%, resulting in a total tax rate of 30%.
It is not possible to opt for progressive taxation, unlike other financial assets. Furthermore, if the total sale of NFTs in a year is less than 305 euros, the sale is exempt from taxation. To date, no allowance for the holding period is granted. Therefore, the tax regime for NFTs is akin to that for financial assets, but with some restrictions.
At the initiative of Mr. Pierre Person, a LREM member of parliament, an amendment was proposed in the 2022 finance bill to apply a different tax regime to NFTs. A new Article 150 VH ter was inserted after Article 150 VH Bis of the CGI, suggesting that the sale of an NFT would be taxed according to the tax regime of its underlying asset, which could be a work of art, a song, a collectible card, or a GIF. This amendment, adopted in committee, was withdrawn during the public session. This attempt at a fiscal regime would have allowed for distinguishing between a "classic" digital asset and a non-fungible digital asset representing a new illustration of private ownership. This initiative highlights the fiscal ambiguity between "classic" digital assets and non-fungible digital assets.
Did you know that the artistic NFT “Everydays: The First 5000 Days” by Beeple, sold for $69.3 million on March 11, 2021, in New York, ranks alongside Jeff Koons’ "Rabbit" and David Hockney’s "Portrait of an Artist" among the most expensive works by living artists?
Issues & Risks of These New Digital Assets
1/ Blockchain Issues
Blockchain technology is indispensable! In simple terms, it can be compared to an electronic notary. It is a public ledger that allows for the tracking and securing of all data related to successive transactions of an asset. Thus, blockchain ensures that digital assets are tamper-proof, secure, traceable, and timestamped.
The internet allows us to obtain data abundantly and for free. Blockchain introduces the concept of digital private ownership, and thus digital scarcity. From its creation, an NFT is protected by the blockchain without any time limitation. The only risk would be the disappearance of the blockchain, which is highly unlikely. This protection is transparent, public, and, of course, borderless.
2/ Should One Invest in an Artistic NFT?
Why invest in an artistic NFT when the image of the asset is often available online for free? To draw an analogy with the "real" world, it’s akin to owning a poster of Monet's Water Lilies versus owning the original artwork. With an NFT, the owner can proudly display that they hold the authentic version of the digital work. The collector, whether digital or not, seeks rarity and uniqueness.
Additionally, an investor may seek a speculative dimension. Digital works are exchanged on the secondary market, and thanks to blockchain technology, issues of counterfeits and copies are eliminated, which tends to strengthen the value of the work. If Leonardo da Vinci's Salvator Mundi were an NFT, questions about its creator and authenticity would not arise today! This enables the artist and their heirs to have proper tracking of the work and, possibly, receive a percentage of the sales price every time the work is resold. Blockchain allows this transparency in transfers.
3/ Artistic NFTs and Works of Art
Artistic NFTs can also result from tangible works of art. For example, a unique high-definition photograph of a Michelangelo painting was transformed into an NFT and acquired by a young Italian for over €150,000. She explained that she was thirty years old and had always viewed works of art on her phone and computer. For her, what she views on screens has as much value as what she could see "in real life."
This new art market raises new issues related to NFTs, particularly regarding the rights surrounding the work. For instance, is an artistic NFT an original work of art?
In the definition of a work of art, two parts make it up: the immaterial part, which refers to the rights attached to works (moral rights and patrimonial rights), and the material part, which is tangible.
When a digital asset is stamped by the blockchain, whether it's a photo, image, or GIF, it becomes rare and unique. Thus, an artistic NFT would meet the criteria of a work of art from the immaterial perspective. As for the material aspect: unless we consider the medium of the NFT (the USB key, the server) as the work itself, we could also argue that it does not meet the material criterion and should be seen only as a certificate of authenticity. These are just some of the questions arising in this new market, and answers may not be forthcoming in the immediate future. At this point, many legal gaps remain.
Thus, choosing to invest in NFTs is not so simple! The strict tax regime likely reflects the legislator’s difficulty in incorporating them into an existing framework, and their definition is still in its infancy, from both a fiscal and legal perspective, as well as in terms of intellectual property.
If you're considering investing in NFTs, it’s important to understand the regulatory landscape, risks, and emerging opportunities in this new and rapidly evolving market.
Contact : Elodie Disson, Manager gestion patrimoniale / private client services
