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"'Gold all doth lure, Gold doth secure all things. Alas, we poor!'"
So begins a recent opinion from EU advocate general Kokott, who faced an unusual situation in a file released on September 11. Lithuanian gold farmers trading ill-gotten gold in the MMO RuneScape – it's unclear if RuneScape and/or Old School RuneScape specifically were implicated – tried to argue they should be exempt from normal taxes.
Buckle up, folks, because we're about to litigate gold sellers. Selling gold is flat-out illegal under RuneScape law, but not actually illegal under real-world laws, so it's trickier than it sounds.
"In the present case, the Court has an opportunity to deal with the way in which an entirely new form of gold trading is considered for VAT [value added tax] purposes," the opinion reads. "A taxable person has managed to 'turn to gold' a 'currency' designed for an online computer game, in-game Gold, outside the game by purchasing it from players and reselling it to other players."
The gold sellers in question were "trying to convince the tax authority" that RuneScape gold is either "an exempt 'currency transaction'" or "at least" a "multi-purpose voucher." This voucher status could affect how much tax is applied and when it comes due under the VAT Directive.
The operation is described as buying and selling gold, posting on "various forums, groups and platforms such as Facebook, Discord and Skype where most people play online games. An advertisement is created to announce that in-game Gold is for sale, indicating prices and contacts."
An inspection showed that this operation earned "significant income" between 2021 and 2023, totaling €415,484. That's about $488,000 USD by current conversions. 2021 was an especially strong year at €199,580 in income.
Because its income exceeded the €45,000 threshold for small businesses under Lithuanian law, "the applicant became liable to pay VAT."
And "because it had failed to do so, by decision of 9 January 2024, the applicant was ordered to pay VAT in the amount of EUR 46 688," the opinion adds. The gold seller "disagreed with the decision of the tax authority and lodged a complaint," which is how we got here.
In a request for a preliminary ruling from the Tax Disputes Commission under the Government of the Republic of Lithuania, this is distilled down to two questions, which are reiterated in the opinion.
"Does the sale of 'Gold' from the game 'Runescape' fall within the scope of the exempt transactions set out in Article 135(1)(e) of [the VAT Directive]?"
And: "If the answer to the first question is in the negative, what should be the taxable value of in-game Gold according to the provisions of the VAT Directive," essentially meaning, should it be the "total consideration for the sale" of the gold or only the real net profit made from buying low and selling high.
This case caught my eye after RSM UK, an audit and tax consulting firm, weighed in on Kokott's opinion. It offers a useful summary of the case in a press release citing partner Philip Munn and associate director Marilena Papamarkidou: "[The gold seller] sought to reduce the VAT liability by arguing that the gold was akin to a voucher (and outside the scope of VAT) or a second-hand good (so VAT need only be accounted for on the gross profit)."
As you can imagine, a whole bunch of rules and regulations come into play here, both for EU law and Lithuanian law. There is, importantly, a VAT exemption for "transactions, including negotiation, concerning currency, bank notes and coins used as legal tender." But it turns out they don't accept RuneScape gold at stores.
Kokott acknowledges that a prior judgment saw the court "extend the concept of legal tender to bitcoins," with a focus on transactions in Sweden, and the VAT Directive is not expressly clear about transactions where one legal tender is involved but the other currency is non-legal tender. However, RuneScape gold is distinct from Bitcoin and doesn't meet this lightened standard of currency either.
In consideration of the relevant tax exemption, Kokott writes: "There can be no question of use solely as a means of payment where a ‘currency’ is used only within a game. In that case, it is not a means of payment, but merely a means within the game, that is to say, play money." And put simply, play money doesn't count.
Addressing the voucher classification directly, the opinion rather amusingly adds: "The mere fact that a service (in-game Gold) can be exchanged for another (such as an item like a 'magic sword') – in the present case, within the game – does not make the service that has already been supplied a voucher."
So for now, while the court's decision remains non-final, it's looking like this gold seller won't escape one of the great inevitabilities of life. In conclusion, Kokott proposes that this RuneScape gold is, in fact, "already a consumable benefit" and therefore outside the scope of the VAT tax exemption.
However, there is a fascinating closer. Kokott suggests that cases like this could necessitate updated interpretations of EU tax law. Specifically, relevant articles of the VAT Directive "must be interpreted, in the light of technological developments, in a teleologically broader manner as covering also transferable non-tangible objects, provided that they are traded in legal transactions in the same way as tangible objects."
The most important quality would be: "Such services are traded on a secondary market in a comparable way to regular second-hand goods and typically contain residual VAT."
In this case, "It is for the referring commission to determine whether that is the case for in-game Gold."
RSM puts it this way: "In the meantime, it is clear that VAT law needs to catch up with technological advances and gaming companies must bear in mind that in-app purchase innovation might create unforeseen VAT consequences."
Here's the real kicker. Remember, this opinion came on September 11. On September 16, RuneScape and Old School RuneScape developer Jagex announced a sweeping crackdown on real world trading, which is fueled by gold sellers, in both games.
"For as long as RuneScape has been around, a disappointing number of players have sought unfair advantages by buying in-game gold directly off illicit sellers," the developer wrote.
"This rule-breaking doesn't just affect the player who's buying the gold. It creates a financial incentive for people who don't care about the game to flood it with bots and throw-away accounts to gather gold to sell. So, when legitimate players gather items to sell on the GE [marketplace], they'll earn less because the market's affected by botted resources, and playing alongside all the highly visible bots is infuriating!"
With this in mind, Jagex said it is redoubling its work to address the "demand-side" of gold selling, not just the suppliers doing the botting and farming, by escalating punishments for buying gold. The developer threatened bans that may be permanent, and said it will be "confiscating items from the offenders." This isn't entirely new, but Jagex is stepping up its efforts, and I've seen reports in the RuneScape community of a recent wave of real world trading punishments.
Now, I don't know for sure if Jagex was actually motivated in part by this EU opinion – and I've reached out to the company for comment – but I do know the timing of the gold seller and magic sword litigation is absolutely hilarious.
