How creating an NFT can be a taxing problem
Last year, specialists from our Tax and Digital Assets teams worked together to advise on the tax footprint of a novel non-fungible token (NFT) for the iconic cardigan of pop star, Harry Styles.
The NFT was issued by British fashion label, JW Anderson, working with the VFX Lab, xydrobe. The NFT was auctioned for charity - the actual physical cardigan itself is exhibited in the Victoria & Albert Museum, in London.
Setting the scene
The process of creating an NFT involves producing a hyper-realistic digital copy in the form of an image - in this case, the Harry Styles cardigan - requiring some 300 hours to create.
How we helped
Over the course of two months, PwC specialists evaluated the structure of the sale and the tax treatment of the NFT - given its unique status. This analysis leveraged prior experience of similar projects, plus PwC’s leading thinking on the appropriate tax treatment of this emerging technology.
NFTs use the technology underlying digital currencies to create high-accuracy digital representations of unique content, such as artwork. PwC has seen a huge amount of interest in these novel use cases for this technology, our advice very much centered on issues relating to financial crime, regulation, taxation and cyber security.
“This project shows how we can apply our leading thinking on tax to a brand new technology such as the sale of NFTs, to solve our client's business problems. It was a real collaboration between PwC, JW Andersen and xydrobe.”
Making a difference
We were proud to be a part of this fascinating project. This year we have worked on many interesting projects in relation to NFTs and we consider ourselves one of the world leaders in relation to our understanding of the appropriate tax treatment.
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