FTA Working Paper on Crypto Currencies and ICOs

Federal Tax Administration, Working Paper, Crypto Currencies, ICOs, Tax Consequences

On 27 August 2019, the Federal Tax Administration (FTA) published a working paper on crypto currencies and ICOs/ITOs as the subject of wealth, income and profit tax, withholding tax and stamp duties. Below you will find the most important information.

The emergence and spread of digital means of payment in the form of crypto currencies - such as Bitcoin and numerous issuances of coins/token in the context of ICOs (Initial Coin Offering), ITOs (Initial Token Offering) or TGEs (Token Generating Event) - have recently raised various questions about the tax treatment of these values.

This working paper outlines the practice developed to date by the Federal Tax Administration (FTA) on the basis of the existing tax laws. This tax practice is a snapshot and is basically based on the facts and transactions submitted to the FTA by the end of May 2019. It can be assumed that not all tax law questions have yet been asked and conclusively answered (e.g. the free transfer of equity and participation tokens [cf. sections 3.3. and 3.4 below] to salaried employees). The practical provisions of the FTA and the cantonal tax authorities will therefore have to develop further and take account of new constellations in the area of ICOs/ITOs. If necessary, the FTA will also notify them accordingly. The categorisation of coins and tokens used in this working paper is based on FINMA's guidance for questions of subordination regarding initial coin offerings (ICO) of 16 February 2018.

The comments in this working paper are divided into two parts.

  • The first part describes the tax treatment of crypto currencies in the form of purely digital means of payment (hereinafter referred to as native tokens or payment tokens) held by investors as private assets.
  • The second part deals on the one hand with the tax consequences of coins/tokens issued in the context of ICOs/ITOs with monetary rights vis-à-vis a counterparty (hereinafter asset-backed token) and on the other hand with the issue of utility tokens. The second part highlights both the level of the investor (private assets or, if applicable, gainful employment) and that of the issuer.

At the request of cantonal tax administrations, the present working paper also addresses issues relating to exclusively cantonal wealth tax.

The determination of taxable income is based on the income statement in conformity with commercial law (cf. Art. 58 para. 1 let. a of the Federal Act of 14 December 1990 on Direct Federal Tax; DBG; SR 642.11), provided that no tax law correction provisions are to be observed in the commercial profit statement (so-called principle of authoritability). Expenses not booked under commercial law cannot be claimed under tax law.

The working paper can be downloaded here (in German).

MME Comments

It is to be welcomed that the Federal Tax Administration has summarised its practice with regard to digital assets in a working paper. An attempt has also been made to present the subject systematically. The administration rightly points out that this is a snapshot based on the facts and transactions submitted to the FTA by the end of May 2019. The working paper, for example, contains many gaps, assumes very specific facts and also leaves some question marks. The publication can therefore be described as "courageous", as the paper still leaves many points open, but would also require a number of clarifications.


The FTA distinguishes between Native / Payment Tokens without legal claim, Asset-backed Tokens with a contractual claim to repayment or cash payment and Utility Tokens with a contractual claim to use a digital service. In the case of Asset-backed Tokens, a distinction is also made between Debt, Equity and Participation Tokens, although all (digital) participation rights under company law are expressly excluded from these definitions.

It is thus based on FINMA's token triad of Payment, Asset and Utility Tokens. However, its ICO Guidelines from February 2018 are a purely purpose-oriented, regulatory classification in which the Anti-Money Laundering Act (payment / means of payment), the securities regulations (asset / investments, above all also participation rights under company law) and a category without financial regulations (utility / usage) are represented. Therefore, the use of similar terms is more confusing than clarifying. The same can also be said of the practical notices issued by the VAT authorities in this area, which also use different definitions. A more comprehensive, cross-agency system would have been more effective and easier to understand.

Income Tax

Certain issues, such as the valuation of wage payments in the form of tokens or the distinction between private asset management and self-employment, are unfortunately forced into certain ( wanted ) forms without a thorough examination of the facts. For example, a "analogous application of the criteria according to Circular No. 36 on commercial securities trading" to native tokens makes no sense at all, since these are to be treated as transactions with conventional means of payment (currencies) and are therefore not securities. In practice, however, the differences between securities and currency trading are so immanent that "analogous application" is diametrically opposed to the content and purpose of KS 36.

Wealth Tax

It is also astonishing that the FTA also takes a stand on the cantonal wealth tax and influences the (cantonal) valuation of digital assets with its price lists. In our opinion, the specification of tax values without an objectively ascertainable market value (e.g. on a regulated stock exchange) is definitely not within the competence of the FTA and is questionable both formally and in terms of content. The proposed valuation of highly volatile assets on the reporting date would then hardly correspond to the long-term realisable, taxable market value. It is significant, however, that the cantons largely comply with these conditions without any discernible resistance.

Withholding Tax

In principle, the token types described by the FTA are not subject to withholding tax due to the lack of a legal basis. This is to be welcomed.

However, the FTA reserves the right to levy withholding tax "if the two following cumulative thresholds are not met:

  • The shareholders of the issuer may hold a maximum of 50% of the issued token at the time of the respective due date.
  • The defined profit participation quota must result in payments to the token holders not exceeding 50% of the EBIT."

Unfortunately, this provision is worded in a cumbersome manner and leaves open whether the "safe haven" is violated if both or only if one of the thresholds is not met.

At this point, we would also like to refer to the general rules concerning hidden profit distributions. These are payments to shareholders or to related third parties who have their legal basis exclusively in the ownership relationship and are not openly disclosed as such in the accounts. An obvious, recognisable disproportion between performance and consideration is assumed. A contractual payment to shareholders, which is also made to unrelated third parties under the same conditions, can therefore, in our opinion, hardly qualify as a hidden distribution of profits. The thresholds mentioned can be used as indications. However, the fulfilment of the other requirements is absolutely necessary for the existence of a hidden distribution of profits.

Stamp Duties

It is correct that the token categories mentioned are not subject to securities transfer tax, even in the case of transactions via securities dealers, provided that they do not refer to taxable securities within the meaning of the Stamp Duties Act.

August 2019 | Authors: Thomas Linder, Christoph Rechsteiner


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