Should The Play-To-Earn Crypto Games Be Taxable?

Cryptocurrencies have not only revolutionized finance, but they have also ushered in the era of Play-to-Earn games. For example, Axie Infinity, the star of the moment, offers fun and generates income in dollars.

These applications allow families to have a primary or supplementary income, but should they be taxed? – Experts say that the first question is whether crypto games on non UK casino sites are games of chance. In that case, “they would be assimilated to raffles, raffles, and lotteries, which are taxed”.

But, crypto games may be compared to the competitive branch of video games, known as eSports or electronic sports. In that case, they would generate a profit associated not with a chance but with the capacity of the digital athlete.

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“If the tournament is abroad, in that jurisdiction, there will be a withholding or tax withholding on the prize for non-resident athletes. When they return home, they will have to pay tax on the profits obtained abroad,” Andrés Burecovics, from B&P Consulting, explains.

Income from crypto games pays income tax like any other income. Not for a game of chance, but mining service.

“Cryptocurrency activities do not fall under gambling and betting legislation, as they are not. You get a digital asset when you buy virtual currencies or win them in a game. It can be used to pay in merchants or be liquidated for profit,” says Axel Becker, Content Manager at Decrypto.la.

Like cryptocurrencies, play-to-earn games are delving into areas still unknown to worldwide legislation. Therefore, it is essential to create a regulatory framework and clarify the tax conditions.

What Is It All About?

Crypto games offer the possibility of collecting items or characters that can be exchanged for other crypto assets. In practice, the difference with a traditional game is that the collectibles or entities in these new games are registered in a public blockchain.

Crypto games use NFTs, considered “assets”, and taxed as personal property. Thus, the expert points out that “they can exchange these items with other users, even outside the game. Also, they may trade them with people who have never used them but have an interest in having a precious item in a particular game”.

Understanding these new technologies’ legal and tax aspects is critical to understanding their essential nature. An NFT or non-fungible token is a unique digital piece that can be exchanged and therefore bought and sold. Do they pay taxes?

A person who buys a piece of art and integrates it into their estate must pay personal property tax. If the owner of an NFT decides to sell it, they must pay income tax: the user is providing a service for which they are paid a reward.

For practical purposes, if someone pays you to do something, then that something is your benefit, and you should apply the corresponding tax on the remuneration.

The Different Types Of Games

Let’s describe the three types of digital games on the market and their tax consequences:

Games Of Chance

The chance of winning is not given by skill but by chance, i.e. the statistical probability of hitting a specific prediction. These include raffles, lotteries, and similar games. These types of games in some countries pay “tax on prizes won in raffle games”, including digital assets, and may include payments in kind.

Moreover, the organizing entity will have the possibility to withhold the delivery of the prize until the tax is paid. In the case of payment, the value of the award must be determined, or the current market price must be taken.

It can be particularly problematic in the case of crypto-assets, as they can have different global quotations depending on country markets.

eSports

“About participation in eSports, there is usually a registration fee and prize money paid to individual participants or teams depending on how far they have come. Exactly like a sports tournament,” says Burecovis.

They are taxed and maybe in more than one jurisdiction. Unlike games that pay rewards and the user plays from home comfort, eSports tend to be in-person tournaments, with an audience, in stadiums or huge venues full of sponsors.

Games that require skill and talent, where the role played by chance is minimal, enter a slightly more challenging terrain. The concept of ‘regularity’ plays a vital role because the income could be subject to taxation if a professional gamer.

The case of Thiago K1NG, the young Argentinean who won a prize in Fortnite, opened the tax discussion on eSports.

The young Argentine Fortnite player ‘K1NG’ in 2019 won a prize of $950,000 in a tournament in the United States. At the time, people discussed whether he was a professional player or not. And, in the case that he was, whether income tax should be applied to him.

Specialists have pointed out that, as with professional sportspeople who win their first prize, the best thing to do is declare the income and register for the tax.

Crypto-Gaming

Axie Infinity is a game in which users can exchange and battle with ‘Axies’, which are small avatars. The game allows you to acquire virtual resources and items represented by an NFT or other tokens with value in specific markets. Some persons regularly and customarily earn a certain amount of income from such tokens.

Such regularity may imply the taxability of such an amount. It is important to remember that the results derived from ‘digital currencies’ are taxed in Profits.

Risk Zone

As with any investment, there is a risk associated with it. In the case of Axie Infinity, we must pay particular attention to the valuation of its Smooth Love Potion ($SLP) and Axie Infinity ($AXS) tokens.

One risk could be that they become devalued, and the return on investment becomes less attractive. Remember that $SLP has unlimited issuance, which can harm its price if it does not have an excellent economic scheme.

Another aspect to take into account is the number of active users online casinos not on gamstop. Although more and more people are playing Axie, the growth will not be endless. Therefore, the game must be prepared to be profitable even in a possible decline in the number of players.

The “scholarship” system for Axie Infinity could hide a disguised employment relationship. Through the system, people may invest and earn money without playing. Instead, they may give the axies to a third party to compete, and the prizes obtained are divided between the parties.

Games like Axie Infinity, Gala, or Alien Worlds require 18+ age to use them. Nevertheless, the possibility of winning crypto-assets with a dollar value has led many people, even minors, to dedicate several hours a day to them.

Even the euphemism ‘scholarship holders’ has been born to refer to people over or under 18 who are given a pack of elements necessary to start playing. It is essential to make an initial outlay to participate in most cases.

The expert warns that “the denomination of ‘scholarship holders’ in some cases disguises an employment relationship. It’s the same as a person who lends another person elements of work to develop an employment activity without a fixed salary. It could be dangerous for minors.

So, the discussion is still early. What do you think about it?