Virtual worlds, real money: Tax issues in the metaverse

THE term “metaverse” is thought to have been coined by Neal Stephenson in his 1992 science fiction novel Snow Crash. Some 30 years later, with major leaps in technology raising the possibility of this becoming a reality, the tech and business world is abuzz with talk of the metaverse and its potential commercial applications. This has led to debates about whether new legal rules are required to regulate the metaverse (see, for instance, Regulating avatars in the metaverse, BT, Aug 26, 2022).

While participants may feel that they are situated in a different plane of existence, given the immersive capabilities of the metaverse, their physical self remains firmly rooted in the same spot. More importantly, the user remains in the same tax jurisdiction in the eyes of the law. Regardless of how real the experience may be, domestic and international tax law does not currently give any special status to a meta realm as a distinct jurisdiction.

However, what we are likely to see is a change in business models and behavioural patterns, leading to different kinds of taxable events becoming either more or less prominent. Tax law may not change but the tax issues of the day will.