03 October 2023

Change in VAT Practice: Native Tokens with Governance Functionality

  • Articles
  • Tax
  • Blockchain / Digital Assets

Revision of FTA practice regarding VAT qualification of tokens

The VAT classification of Native Tokens with governance functionality has not yet been completely clarified (see magazine article of 6 December 2022: Swiss VAT Qualification of (Native) Tokens).

However, the Federal Tax Administration (FTA) has now apparently revised its practice in this regard and has communicated this in individual cases:

  • If the governance functionality of a Native Token is only an ancillary functionality, and the token is otherwise primarily to be qualified as a means of payment or a voucher of value, its qualification as a non-taxable Payment Token for VAT purposes does not change.
    • Native Tokens such as ETH (Ethereum), XTZ (Tezos), ADA (Cardano), ICP (Dfinity) or NEAR should, therefore, be treated equally and qualify as non-taxable Payment Tokens.
  • However, if governance is the primary functionality of a token, it may be a taxable supply and qualify as a Utility Token for VAT purposes. The corresponding supply, however, must be defined or at least determinable.
    • Donations, contributions, means of payment or vouchers of value do not constitute a determinable supply.

The exact criteria of delimitation remain unclear until the published practice is amended. For the time being, it must be carefully examined whether the governance functionality is the preliminary or ancillary functionality of the Token and how the other functionalities are to be qualified.

Further, it should be noted that the VAT qualification may be different from the FINMA qualification, although both authorities use the same terms. Thus, it is not possible to simply rely on the FINMA classification for VAT purposes. A separate analysis must be performed.

We are available to answer any questions. We will be happy to support you in setting up a suitable qualification process for tokens from a VAT perspective or in all other legal, tax or regulatory matters.