The Future of Tax in the Metaverse
Through a series of workshops with three national tax authorities, we explored the key opportunities and risks the metaverse presents to the future of taxation.
FUTURE PROOF – BLOG BY FUTURES PLATFORM
When metaverse took the spotlight in 2021, much of the initial focus was on business opportunities. Lifestyle sectors in particular saw high adoption rates, with fashion and entertainment brands setting up shops, selling virtual goods and organising events on open virtual gaming platforms like Roblox. But although the metaverse may have become synonymous with these sectors to some extent, it represents a much larger societal, cultural, and commercial shift – and entering this uncharted territory will also have multifaceted implications for public service organisations, including tax authorities.
WHAT IS THE METAVERSE?
There’s no single established definition of the term metaverse. Broadly speaking, it can be characterised as a network of 3D virtual worlds that blend physical, virtual, and augmented reality together to create immersive experiences.
As such, the metaverse isn’t directly related to a single technology or company. Rather, it’s envisioned as an extensive ecosystem with many different players and platforms, similar to today’s social media landscape or the world wide web. As the concept evolves, multiple metaverse realms are likely to emerge, for example, each operated by a single brand or community.
WHAT DOES THE METAVERSE MEAN FROM A TAX PERSPECTIVE?
The advent of open virtual worlds will bring along a new virtual economy, encompassing novel value creation opportunities, virtual currencies, and new forms of transactions. As such, it’s poised to impact how we work and pay taxes, as well as how we access public services.
Today, there’s already a fast-growing business ecosystem established around virtual worlds and goods. NFT sales volume amounted to $24.9 billion in 2021, compared to just $94.9 million the year before.
While the technologies are still nascent, and some experts believe that the metaverse is just commercial hype created by tech giants like Meta (formerly Facebook), the behaviour shift is also there: A recent McKinsey survey found that a majority of consumers know and engage with some form of metaverse, and many expect it to become a significant part of their lives within the next five years.
All this naturally raises several new uncertainties for public service, including taxation systems. How can regulation, which is traditionally limited to governing business activities within certain geographic areas, adapt to a new, virtual universe with little to no jurisdictional boundaries? What impact will the emergence of open virtual worlds have on the futures of work and employment? How can public organisations, such as tax authorities, make their services accessible and fulfil their role as key enablers of well-functioning societies in these worlds?
Want to learn more about the metaverse and what your organisation can do to prepare? Watch our on-demand webinar to discover the key trends shaping future virtual worlds.
EXPLORING THE VIRTUAL WORLDS OF TOMORROW FROM A TAXATION POINT OF VIEW
Through a series of collaborative foresight workshops together with three national tax authorities, the Finnish Tax Administration and Norwegian Tax Administration among them, we set out to co-explore the complex topic of virtual worlds from a taxation point of view. Our key focus areas were:
What is the metaverse in a tax context: How could taxation work in virtual worlds? How can public service organisations, such as tax authorities, make their services accessible in these contexts?
What do the authorities need to be prepared for in terms of opportunities vs risks?
What kind of indicative actions match the identified key opportunities and risks?
OUR WAY OF WORKING: COLLABORATIVE, EXPLORATIVE AND GEARED TOWARD ACTION
Bringing international subject matter expertise together with the expertise of futurists and project leadership, we at Futures Platform facilitated a series of four collaborative and explorative interactions earlier this year.
During these sessions, participants worked through the initial creative exploration stage to identifying strategic action points. The focus gradually moved from horizon scanning to sense-making, and ultimately formulating actionable insights to inform strategy work.
A key outcome of the joint project was a presentation by each participant organisation on the main topics and findings identified for strategic follow-up, presented to the entire project team as well as external stakeholders.
Futures Platform’s workshop process, where participants are guided from the initial creative exploration stage to identifying strategic action points
As the first step, Futures Platform’s team of futurists carried out initial horizon scanning and prepared a foresight radar on Taxation and Metaverse with 50+ relevant trends, weak signals and wild cards, with a timeline from the present day to 2032. The phenomena on the radar were categorised into five different sectors – society, commerce, work, education & training, and entertainment.
The visual foresight radar served as a starting point for our exploration into the future of tax in the metaverse. In the first online workshop, each organisation worked within their own silos to explore the phenomena more closely and refined their focus by prioritising the themes they considered most critical for their organisation’s future.
In the following sessions, participants worked in mixed groups, where they had a chance to share insights and discuss similarities and differences regarding taxation in their respective national contexts.
Foresight radar displaying the key future trends shaping the metaverse on Futures Platform
MAIN CHALLENGES FACING TAXATION IN THE METAVERSE
During the course of the project, the tax authorities identified 20+ key topics to address regarding the metaverse in the domains of international compliance, need for joint regulation, and proactive communication with the public.
The main challenges participant organisations identified were related to the decentralised nature of virtual worlds, where identifying the origins of revenue or tracing transactions may prove difficult. Lack of regulations and knowledge may also lead to tax avoidance if not addressed.
During our workshops, systems thinking and cross-border information sharing emerged as crucial elements for incorporating tax into emerging virtual economies.
Collaboration with tech developers, platform providers, and businesses will be needed to build the tax component into these new virtual worlds from the get-go.
FIRST EXPLORATIVE ATTEMPT TO GRASP FUTURES OF WORK & INCOME IN THE METAVERSE
Our collaboration was the first explorative attempt to grasp the complex topic of virtual worlds and how they may shape futures of work, employment and income.
Already in this early stage, there are plenty of opportunities to earn an income in the metaverse, for example, by designing, selling and trading virtual assets, in-game currencies, or virtual real estate.
With developing technologies and increased adoption, new forms of employment and income are also likely to emerge. For instance, we expect the gig economy and virtual currencies to thrive in the metaverse. As virtual presence becomes more accepted, employees may increasingly work across multiple organisations and geographies.
The metaverse will add another layer to our lives, just as the internet and smartphones did. It is paramount for tax authorities – and other public organisations – to explore the emerging metaverse ecosystems and advocate for these frontiers to operate responsibly and equitably.
How is your organisation preparing to meet your customers and stakeholders in the metaverse?
Miikka Rosendahl, CEO of the XR studio ZOAN, and Futures Platform’s Foresight Analysis Manager Max Stucki discuss how the next evolution of the internet will transform industries.