Navigating Swiss Tax Rulings for Crypto Token Raises: The 5% Cost-Plus Approach Explained

In recent years, Switzerland has cemented its position as a global leader for blockchain and crypto innovation. One critical aspect startups must navigate when raising funds through token offerings is taxation. Switzerland recently clarified its stance with a pivotal tax ruling, significantly impacting how token raises are structured and taxed.

Understanding the Tax Ruling

The Swiss Federal Tax Administration (FTA) issued guidance clarifying the tax treatment of tokens issued by blockchain companies during fundraising events. Specifically, the ruling outlines when proceeds from token raises are considered taxable income versus when they might qualify as non-taxable capital contributions.

Key takeaways from the ruling include:

• Taxable Income: If tokens issued represent goods or services promised by the issuer (utility tokens) or grant rights to future profits (security tokens), proceeds from their issuance are generally considered taxable revenue.
• Non-Taxable Capital Contributions: Tokens issued that represent equity or ownership-like rights (asset tokens), without explicit ties to goods, services, or profit distribution, may qualify as non-taxable capital contributions under Swiss tax law.

Criteria for Tax Assessment

The Swiss tax authorities use several criteria to evaluate the tax implications of token raises:

1. Token Classification: Determining whether tokens are utility, security, or asset tokens.
2. Use of Proceeds: Clearly defined use cases aligning with declared purposes.
3. Legal Documentation: Thorough documentation demonstrating compliance with regulatory requirements.

Common Approaches and Cantonal Differences

One common accounting approach approved by Swiss tax authorities is the "5% cost-plus" method, where the taxable income is calculated based on costs incurred plus a standard markup of 5%. This simplified method is widely adopted for token raises.

Moreover, the requirement for obtaining an individual binding tax ruling may vary significantly depending on the canton. For instance, Zug now typically accepts this accounting treatment without necessitating a separate ruling, simplifying compliance for blockchain companies operating there.

Accounting Bookings for Token Pre-Sales

When conducting a pre-sale of utility tokens, startups typically record the proceeds initially as a liability, akin to deferred revenue. This liability is gradually recognized as revenue based on the actual costs incurred, with a standard 5% markup applied.

It's important to note when assessing operating expenses (opex) for the 5% cost-plus calculation, any currency conversions, exchange rate gains or losses must be excluded. Additionally, startups need to book a tax accrual (typically 9.2% of total profits for a Zug-based foundation), which itself can be included as part of the operating expenses before applying the 5% markup.

Real-Life Example:

• A blockchain startup conducts a token pre-sale, raising CHF 10,000,000 in utility tokens.
• Initial Booking:
  • Debit: Bank Account CHF 10,000,000
  • Credit: Deferred Revenue (Liability) CHF 10,000,000
• Revenue Recognition (upon incurring costs):
  • The startup incurs CHF 2,960,926.94 of relevant operating expenses (excluding currency conversions or exchange rate impacts).
  • Profit after tax accrual: CHF 148,046.40
  • Calculate tax accrual: CHF 13,647.01 (9.2% of CHF 148,046.40 profit).
  • Total adjusted operating expenses: CHF 2,974,573.95 (CHF 2,960,926.94 opex + CHF 13,647.01 tax accrual).
  • Revenue recognized would thus be CHF 3,144,048.07, calculated as CHF 2,974,573.95 in adjusted operating expenses plus a 5% markup of CHF 148,046.40, resulting in the profit.
  Accounting entry:
  • Debit: Deferred Revenue CHF 3,144,048.07
  • Credit: Revenue CHF 3,144,048.07

Implications for Startups

Startups aiming for clarity and reduced tax risk should consider obtaining a binding tax ruling from Swiss authorities before launching their token raise unless their canton already explicitly accepts a standard approach, such as Zug's acceptance of the 5% cost-plus method.

Moreover, startups should structure their token offerings carefully, clearly distinguishing between taxable and non-taxable events, to optimize tax positions and compliance.

Strategic Recommendations

To navigate the evolving tax landscape effectively, startups are advised to:

• Consult with tax and legal experts familiar with Swiss crypto regulations.
• Obtain a binding tax ruling for clarity on specific token offerings unless the canton explicitly exempts the requirement.
• Clearly document the token structure, utility, and intended use of funds.

Conclusion

Switzerland’s recent tax ruling underscores its commitment to maintaining a transparent, innovation-friendly environment for blockchain startups. By carefully aligning token raises with Swiss tax guidelines, startups can ensure compliance, minimize tax exposure, and foster investor confidence.

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