Taxation Of Initial Coin Offerings In Switzerland

Author:Dr. Roland Böhi, Danielle Wenger and Stefan A. Wandel
Profession:Prager Dreifuss

 Be it in the Zug "Crypto Valley" or elsewhere, various large-scale Initial Coin Offerings or ICOs have recently been conducted in or from Switzerland. ICOs are a new instrument of raising capital for the financing of com-mercial projects, which includes an issuance of (diverse) legal claims by digital means. Those so-called (crypto) tokens can, for example, be used to access a platform, participate in a project or give a right to participate in a share of the returns provided by the project. Despite conceptual and legal differences, ICOs can basically be compared to the Initial Public Offering or IPO but without accompanying flotation.

According to the ICO Alert website, there are over 40 ICO offerings worldwide as at the end of December 2017. Notwithstanding the unprecedented surge of ICO activity, tax considerations remain vital to both ICO investors and providers (those organizing the ICO fund raising campaign). For this very reason Prager Dreifuss wants to take the opportunity to provide an overview of the most significant instances of ICO taxation in Switzerland.

Sequence of ICOs

ICOs have in common that so-called crypto tokens are issued (hence frequently also referred to as Token Gener-ating Event or TGE). The issuer can freely decide upon the design of the specific crypto tokens, i.e. the rights or claims he undertakes to grant to the investors through the tokens. One can cite, by way of example, tokens that define a share in a company with rewards depending on the profit of the company (i.e. dividends) thereby making it essentially comparable to an IPO (equity token). In addition, the token may also refer to payment/repayment obligations (debt token), the usage of future products, services or platforms (utility token), the periodical reward based on the success of a company in the form of revenue incl. voting/membership rights (participation rights token), as well as - more frequently - tokens, which simply represent a new cryptocurrency such as Bitcoin or Ethereum.

The implementation of an ICO does not require a particular type of company or actual business operation. Even individuals who do not run a business are technically capable to offer tokens as long as they have sophisticated coding skills (or engage somebody with such skill set). Mostly however, the provider or issuer of a token is a blockchain technology start-up company looking for seed capital to finance future projects. In a Swiss TGE where the issuer looking for...

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