Christine Kim, a Harvard legal scholar and professor of law at Yeshiva University, recently published a research paper detailing the argument for not just taxing virtual universes, but seeing them as “laboratories for experimenting with cutting-edge policy.”
In the paper, dubbed simply “Taxing the Metaverse,” King argues that the Metaverse allows participants to create and accumulate wealth entirely within its ecosystem.
Kim argues that this nascent wealth sector should be regulated by tax laws:
“Because economic activity within the Metaverse satisfies the Haig-Simmons and Glen Showglass definition of income, excluding it would create a tax haven.”
The paper goes on to explain that virtual universes have the ability to “record all digital activity and track personal wealth,” meaning governments can track and tax income as soon as it is received — something King says could change America Current state of tax law.
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King further suggested changing the way the tax is implemented. In this case, based on research, Metaverse users in the US are currently only taxed when they effect or participate in taxable events such as withdrawals.
According to Kim’s proposal, gains would be taxed immediately upon receipt, “including unrealized gains and income,” even if they still exist in the virtual world.
In this case, the more pressing issue is execution. King writes that there are two possible approaches to enforcing tax laws in the virtual world. The first involves individual platforms withholding taxes on behalf of users.
The second type, which Jin said is less desirable, is called residence tax, which relies on the platform to send tax information to users, who then submit and pay their own tax obligations.
The paper also argues that taxing virtual universes provides more opportunities for lawmakers, even those not normally interested in Web3 and virtual universe technologies.
“The virtual universe can become a laboratory for experiments,” King wrote, adding that it “has the potential to simulate unlikely real-world scenarios.”