The tax aspect of crowdfunding activities is a cause of concern for many of those concerned, as the tax consequences are not always clear.
Crowdfunding refers to the financing of projects by numerous donors. In this process, projects that are placed by borrowers on a crowdfunding platform are financed by many individuals. The platform is then responsible for the operation of the website, the activation of the projects as well as the coordination and consolidation of donors and recipients of funds. Thanks to technological progress, however, decentralized technologies such as blockchain also make it possible for a particular project and donor to merge directly, without an intermediary, and to carry out transactions worldwide on a secure basis.
1. Forms of Crowdfunding
The tax aspect is a cause of concern for many of those concerned, as the legal consequences of crowdfunding are not always clear. The challenge in crowdfunding is that there are different forms with different tax consequences. The whole subject is complicated because different combinations can occur.
Crowdinvesting is a form of crowdfunding in which investors invest money in a company. In return, they may receive company shares or a share in profits (i.e. shares, ordinary shares, profit participation or participation certificates). Mixed forms of equity and debt capital (e.g. loans with profit-related remuneration) are also possible.
In the case of crowdinvesting, the following types of tax are particularly important:
The issue tax of one percent is levied on domestic participation rights if the market value of the deposits exceeds CHF 1 million.
Distributed dividends are also subject to withholding tax at a rate of 35 %, which can be refunded if certain conditions are met.
If the investor is a private individual, the capital shares are subject to wealth tax at their respective market value. If there is no market value, a valuation is to be carried out in accordance with Circular Letter No. 28 of the Swiss Tax Conference: for the year of foundation and the period of the development phase, the valuation is generally based on the net asset value, and thereafter on the net asset value and capitalised earnings value. However, if a significant change in ownership has taken place between independent third parties, the corresponding purchase price is considered as fair market value.
If the issued shares are sold via a securities dealer, the turnover tax of 0.15 percent has to be paid for domestic deeds. Private individuals realize a tax-free private capital gain or loss (exceptions: indirect partial liquidation, transposition, professional securities dealers). In other cases, the investor has a taxable income or loss (although corporations may be able to claim the participation deduction). If hybrid forms of equity and debt capital exist, the rules on crowdlending must also be applied.
Crowdlending (or peer-to-peer lending) refers to the financing of companies or private individuals through loans, i.e. through outside capital. The consideration to the lenders is the risk-dependent interest payment.
It should also be noted that excessive interest payments to participants that are not in line with market conditions are not deductible and are subject to withholding tax of 35% (= tax reclassification as dividends, e.g. in the case of loans with profit-related interest in the case of participatory loans). Excessive debt financing of a company by stakeholders can also lead to a reclassification from debt to equity.
Furthermore, the withholding tax is also levied on bond interest. This applies if there are more than 10 lenders on the same terms or if there are more than 20 lenders on different terms. Depending on the lender, the withholding tax is fully or partially refundable.
Crowddonating is a variant of crowdfunding in which the supporters offer money for a project and do not expect anything in return. Crowddonating is the oldest form of group financing. For example, large church buildings were already financed by donations in the 6th century.
In Switzerland, natural persons as donors can make donations and gifts, but only if the beneficiary is a tax-exempt legal entity (i.e. with a charitable purpose) domiciled in Switzerland. In addition, the contributions must exceed CHF 100 and, according to Art. 33a Federal law on direct federal tax, these must represent less than 20 percent of taxable income. Similar provisions also apply to legal persons.
Depending on the recipient's situation and participation, donations and gifts may be subject to gift tax, income tax, profit tax or a combination of these taxes - or may be tax-free. Various cantonal regulations must be observed.
Donations, on the other hand, are generally irrelevant for value added tax purposes. A mention of the donor, for example in a program booklet or on a CD booklet in neutral form (including logo) is permitted. However, if a more extensive advertising service is provided (for example in the form of an advertisement; so-called sponsoring), the payment no longer qualifies as a donation but as taxable crowdsupporting.
In crowdsupporting, also known as ""reward-based crowdfunding"", supporters often receive a (one-off) payment in the form of contributions, such as a product or merchandise. The sale is subject to VAT at a different rate (2.5%, 3.8% or 7.7%) depending on the consideration.
Uncertainties arise when there is an imbalance between performance and consideration. Often the supporter receives no actual consideration for his payment, but for example a gift (e.g. T-shirt) as a thank you. The following thoughts are decisive:
Payments that are not made in anticipation of the gift are more likely to qualify as donations with the corresponding tax consequences of crowddonating (see chapter on crowddonating). This assumes that the donation would have been made even without the gift. The gift then qualifies as a second donation back to the supporter.
This also applies to VAT: if small promotional gifts with a value of up to CHF 5,000 are given as consideration, they qualify as irrelevant donations, unless the payments were made in anticipation of this consideration.
2. Inital Coin Offering (ICO)
The concrete structure of an ICO and the tokens created in this way differ substantially in technical, functional and legal terms. The focus, however, is usually on raising capital for the project, for which the fundraiser enters into a bouquet of contractual or factual obligations in return, which may be related to the token function, but often exist independently of it. The tax assessment of an ICO therefore depends strongly on the individual structure. The respective tax consequences must be examined on a case-by-case basis and can only be presented in a generally valid manner with difficulty.
However, as a principle, we believe that the same tax rules should be applied as are generally applied to crowdfunding and are based on four basic types of tax: (1) equity / capital contribution; (2) debt / repayment; (3) consideration / advance payment; or (4) allocation / donation. It would also be advisable here to link up with the accounting treatment of ICOs in accordance with the Q&A of the ExpertSuisse Commission for Accounting.
However, both the donors and the recipients must be aware of the financial consequences of a transaction as well as their respective rights and obligations. The difficulty with crowdfunding and ICOs is that very different tax consequences have to be considered depending on the form. In addition, countless combinations (e.g. participatory loans with profit-related interest, conversion of debt capital into equity capital, mixed gifts, etc.) or cross-border situations are possible, which further complicates the situation.
For larger and more complex crowdfunding projects, a case-by-case analysis is recommended so that the exact circumstances and special features can be included. In addition, the case can be discussed in advance with the tax authorities so that no unpleasant surprises can arise later which could seriously endanger the survival of a project.