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Perspectives on VAT considerations for blockchain-based tokens in Switzerland

Switzerland - with the cooperation of governmental authorities - especially in the canton of Zug, is playing a pioneering role worldwide in the field of blockchain technology. 

 

This naturally leads to questions on the subject of how to deal with the topic of tax with regards to blockchain tokens. One particularly thorny issue is Value Added Tax (VAT).

 

How do you know if VAT is owed on the money you raise during an ICO? Which types of tokens are subject to VAT? Are token owners subject to VAT when they resell tokens on a secondary market?

 

Let’s examine the issue:

 

The VAT Department of the Federal Tax Administration distinguishes between three different types of blockchain-based tokens:

 

Payment Tokens - (such as Bitcoin and Ether etc.) are primarily used as a means of payment (like cash). They do not subject the issuing person (company, foundation) to VAT.

 

Usage or utility tokens - grant the right to receive a service (e.g., license). They are subject the issuing person (if Swiss) to VAT, except when the service is granted to foreign recipients. If usage tokens are sold to new domestic users by domestic token holders, this sale is subject to tax liability since a right of use is transferred. However, it is worth noting that this approach has not yet been established.

 

Investment or asset tokens - give you the right to a financial asset (derivative). They do not subject the issuer to VAT. This view is not fixed yet, however. The sale by the token holder continues to be considered as excluded financial turnover with different possible tax consequences.

 

The treatment of blockchain-based tokens as regards VAT is not yet an established and perfected process. These are only initial assessments, which may well change. We, therefore, strongly recommend that you examine each case individually as it pertains to you and, if necessary, apply to the VAT Department of the Federal Tax Administration for a ruling to ensure compliance.

 

Kathrin Kühn 19 June 2018

 

Keywords: VAT, Blockchain, Tokens