Not taxing the metaverse properly could result in the formation of a tax haven.

A recent research paper by legal scholar Christine Kim from Harvard and Yeshiva University explores the topic of taxing the metaverse and suggests considering it as a platform for innovative policy experimentation.

In her paper titled “Taxing the Metaverse,” Kim highlights that participants in the metaverse have the ability to generate and accumulate wealth exclusively within its ecosystem.

Kim proposes that this emerging wealth sector should be subject to regulation and taxation in accordance with existing tax codes.

“Because economic activity within the Metaverse satisfies the Haig-Simons and Glenshaw Glass definitions of income, its exclusion will create a tax haven.”

In her paper, Kim highlights the metaverse’s unique capability to record and track digital activity and individual wealth,

enabling governments to promptly track and tax income.

This, according to Kim, could potentially disrupt the existing framework of tax laws in the United States.

Furthermore, the research paper suggests revising the current tax realization approach.

As per the findings, metaverse users in the U.S. are currently subject to taxation only upon realization or when engaging in taxable events,

such as making a withdrawal.

Young Ran (Christine) Kim

Kim’s proposals suggest implementing immediate taxation on gains received within the metaverse,

including both realized and unrealized gains and income, even if they remain within the metaverse.

The primary concern, in such a scenario, would be enforcement.

Kim outlines two potential methods for enforcing tax laws in the metaverse.

The first method involves individual platforms withholding taxes on behalf of their users.

The second approach, which Kim considers less preferable, is known as residence taxation.

This method would require platforms to provide tax information to users who would then be responsible for filing and paying their own tax obligations.

The research paper also emphasizes that taxing the metaverse presents lawmakers with additional opportunities,

even for those who may not typically be interested in Web3 and meta technology.


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