Harvard legal scholar Christine Kim has published a research paper advocating for the taxation of the metaverse and treating it as a “laboratory for experimenting with cutting-edge policy.” Kim argues that the metaverse, with its ability to create and accumulate wealth within its ecosystem, should be subject to taxation to prevent it from becoming a tax haven.

The paper explains that economic activity within the metaverse fulfills the criteria for income as defined by tax codes, and its exclusion could create a loophole for avoiding taxation. Kim suggests changes to the current tax realization system in the United States, where users are taxed only upon realization or taxable events such as withdrawals.

Under Kim’s proposal, taxation would occur immediately upon the receipt of gains, including unrealized gains and income, even if they remain within the metaverse. However, enforcement of such a tax system remains a challenge.

Kim outlines two potential methods for enforcing tax law in the metaverse. The first involves individual platforms withholding taxes on behalf of users. The second method, referred to as residence taxation, relies on platforms sending tax information to users who would then file and pay their own tax obligations.

The paper also highlights that taxing the metaverse provides opportunities for lawmakers to experiment with new policies and regulations. It argues that the metaverse can simulate scenarios unlikely to occur in the physical world, making it a valuable testing ground for innovative approaches to taxation and governance.