Investments in crypto assets

Case 1: Issuance of tokens

1. direct investment

1.2 Variant A - Private assets

1.2.1 Facts of the case

Simon Benjamin Fuchs (hereinafter "SBF") works 100% for the Z tax office. In his spare time, he is interested in crypto assets.

Through an acquaintance, SBF has the opportunity to acquire 10,000 SwissCo tokens during the seed round. Based on a contractual agreement, the token holders will receive 20% of SwissCo's EBIT in future.

According to the GTC, the first 10 million (10%) of a total of 100 million tokens will be sold during the seed round at a price of CHF 0.40 per token. At least 5 million tokens will be sold to independent third parties. Three months after the seed round, the remaining tokens will be traded on an official trading platform at a price of between CHF 3.50 and CHF 4.20 (average CHF 3.85).

Questions

1. What type of token is it?
2. What are the tax consequences of buying tokens for SBF?
3. How is the purchase price to be assessed?
4. What are the tax consequences for SBF of future distributions based on EBIT?

2. variant B - business assets

2.1 The facts of the case

SBF works 100% full-time for an asset manager. He is also interested in crypto assets in his spare time.

Through an acquaintance, SBF has the opportunity to acquire 10,000 SwissCo tokens during the pre-sale round. SBF buys these via Invest GmbH, in which he holds a 100% stake.

Based on a contractual agreement, the token holders will receive 20% of EBIT from SwissCo in future.

According to the GTC, the first 10 million (10%) of a total of 100 million tokens will be sold at a price of CHF 0.40 per token. Three months after the pre-sale round, the remaining tokens will be traded on an official trading platform at a price of between CHF 3.50 and CHF 4.20 (average CHF 3.85).

Questions

1. What are the tax consequences of the purchase of the tokens for Invest GmbH?
2. What are the tax consequences for Invest GmbH for future distributions based on EBIT?

3. variant C - founders and employees

3.1 Facts of the case

SBF is a professor of mathematics at ETH and, together with three colleagues, has founded SwissCo AG, which offers services in the crypto sector. Both SBF and his colleagues each hold 25% of the shares in SwissCo. From next year, he will be working 40% for SwissCo.

SBF acquires 250,000 tokens (out of a total of 1 million tokens) from SwissCo, which are issued during the pre-sale round. The remaining 750,000 tokens will be acquired by his three colleagues. In a second round, a further 500,000 tokens will be created, which will be acquired from third parties via a trading platform.

Based on a contractual agreement, the token holders will receive 55% of EBIT from SwissCo in future.

According to the GTC, the first million of a total of 1.5 million tokens will be sold at a price of CHF 0.40 per token. One month later, the remaining tokens will be traded on a trading platform at a price of between CHF 3.50 and CHF 4.20 (average CHF 3.85).

Questions

1. What are the tax consequences of buying tokens for SBF?
2. How is the purchase price to be assessed?
3. How are the payments in % of EBIT taxable for the investors?
4. Can investment tokens with a contractual basis be subject to VST?

4. investments by means of SAFT

4.1 Facts of the case

As part of a SAFT (Simple Agreement for Future Token), SBF and eight other investors are granting SwissCo loans totaling CHF 500,000, which will be converted into tokens at a later date. The loan from SBF amounts to CHF 10,000 and the investors receive an interest rate of 3%.

If the ICO is successful, SBF can convert the nominal value of the loan into tokens with participation rights. This is done at the selling price of the tokens, which is determined during the ICO, reduced by a conversion discount of 20%.

The selling price of the tokens during the ICO has not yet been determined and is difficult to assess at the time of the conclusion of the SAFT.

Finally, the selling price of the tokens during the ICO is CHF 1.00 per token, i.e. the CHF 10,000 loan from SBF will be converted into 12,000 tokens (convertible discount of 20%).

Questions

1. What are the tax consequences for SBF of granting the loan?
2. What are the tax consequences for SBF during the term of the loan?
3. What are the tax consequences for SBF at the time of the conversion of the loan into tokens with participation rights in relation to the conversion discount?

5. variant A - increased wall discount

5.1 Facts of the case

Basically the same facts as the basic facts with the exception that a conversion discount of 30% (instead of 20%) is granted.

Question

1. What are the tax consequences for SBF at the time of the conversion of the loan into tokens with participation rights in relation to the conversion discount?

6. variant B - contractual basis

6.1 Facts of the case

Basically the same facts as the basic facts, with the exception that investment tokens are issued on a contractual basis and the conversion discount cannot be determined using financial mathematics.

Question

1. what are the tax consequences for SBF at the time of the conversion of the loan into tokens with a contractual basis in relation to the convertible discount?

7. variant C - large number of creditors

7.1 Facts of the case

Basically the same facts as the basic facts, with the exception that investment tokens are issued on a contractual basis and the conversion discount cannot be determined using financial mathematics. In addition to SBF, 20 other investors have granted loans totaling CHF 1 million.

Question

1. what are the tax consequences for SBF at the time of the conversion of the loan into tokens with a contractual basis in relation to the convertible discount?

Case 2: Investment in crypto fund

1. facts of the case

SBF, who works 100% at the Z tax office, is very interested in financial news in his spare time. In January 2024, he read on Bloomberg News and in the Financial Times that the US SEC had approved the first Bitcoin spot ETFs.

A veritable battle has now broken out among asset managers over this new asset class. The largest crypto funds currently include the BlackRock iShares Bitcoin Trust (IBIT) with USD 22 billion and the Grayscale Bitcoin Trust (GBTC) with USD 14 billion. capitalization. SBF is very excited about this new product and is investing CHF 10,000 in BlackRock's IBIT.

Questions

1. what type of asset is IBIT?

1. Are taxes due on the purchase of the IBIT, and if so, how could he "optimize" them?
2. What current taxes are due?

Case 3: Corporate actions on the blockchain

1. airdrops

1.1 Facts of the case

SBF found out about Airdrops from a colleague. He found out about it on a "crypto-nerd" forum and his curiosity about Project Togo was aroused.

During his research, he learns that the Togo tokens are transferred to wallets of registered members of the community. The airdrop is free, but requires joining a Telegram group, registering and liking the project team's posts on X and collecting "gems" or points, which serve as a measure of engagement in the community.

SBF is enthusiastic about the idea and decides to take part in the airdrop. He follows the instructions described on the airdrop platform and completes the tasks. By completing the tasks, SBF gradually collects a few "gems".

After a certain amount of time and the successful completion of the required tasks, SBF has accumulated a total of 1,350 Gems. The airdrop is finally carried out and SBF receives his Togo Token. According to the terms of the airdrop, he receives a total of 4,050 Togo Tokens for his 1,350 Gems at a ratio of 1:3, which are now credited to his wallet.

Questions

1. What type of airdrop is this?
2. What are the tax consequences of the airdrop for SBF?
3. Does the tax assessment change if SBF is obliged to advertise intensively on social media in return for the airdrop?
4. Does the tax assessment change if SBF "simply" receives the airdrop because it already holds the XVU token?

2. forks

2.1 The facts of the case

A few years ago, there were frequent forks in the road.

It all started with the Ethereum blockchain. This split into Ether (ETH) and Ether Classic (ETC) following a hack in 2016.

In 2017, Bitcoin (BTC) followed with two forks: Bitcoin Cash (BCH) and Bitcoin Gold (BTG).

SBF was an early adopter of Bitcoin (BTC), which is why he was also involved in both forks (BCH and BTG; both at a ratio of 1:1 to BTC) in 2017.

However, SBF did not tell anyone about the "free" tokens it had received and has kept them "hidden" in its online wallets to this day.

He has neither sold the new free tokens nor used them in any other way (e.g. given them away for staking).

Questions

1. What is a fork and what types are there?
2. What type of fork are the two BTC fork events for SBF?
3. Does this have tax consequences for SBF?

3. staking (hold)

3.1 Facts of the case

SBF wants to stay up to date and is therefore inevitably now also intensively involved with staking.

In January 2023, he decides to take part in a staking project. He has already had the GNH tokens for some time and deposits them in a staking pool. After one year, SBF receives compensation of 50 GNH tokens for staking.

The GNH tokens have a market value of the equivalent of CHF 5 per token in January 2023 and the equivalent of CHF 9 per token in January 2024.

SBF is enthusiastic about the (financial) possibilities and wants to set up a project itself.

He will start in June 2024 and use the CVA tokens held in his private assets as a validator. In return, he is promised compensation of 150 CVA tokens after one year.

Questions

1. What are the tax consequences for SBF of staking GNH tokens?
2. What will change with the staking of CVA tokens?

4. token burn / redemption

4.1 Facts of the case

SBF learns about the DEF token from a work colleague and buys 5,000 DEF tokens in January 2024.

As part of a project to reduce the number of tokens and increase the value of the remaining tokens, the DeFi platform has been conducting regular token burns since December 2023.

SBF decides to make half of his 2,500 DEF tokens available for "burning". In return, he receives compensation of 400 HNG tokens, which are traded on a secondary market.

Questions

1. What is a token burn and how does it work?
2. Does the burning of the 2,500 DEF tokens have consequences for SBF?
3. How is the receipt of the 400 HNG tokens to be treated for tax purposes?

Case 4: Employee token

1. facts of the case

SBF is a shareholder and employee of Liquida AG, based in Zug. Liquida AG was founded in April 2020 with share capital of CHF 200 thousand (2,000 shares with a nominal value of CHF 100).

Liquida AG aims to operate a crypto exchange platform that enables its users to exchange tokens for FIAT currency. Liquida AG is financed by fee income paid by users through the exchange of tokens into FIAT currency.

In May 2020, 10,000,000 Liquida tokens will be issued at a price of CHF 1.00 to finance this platform. According to the whitepaper, the token holders are contractually guaranteed 40% of the above-mentioned exchange fees as compensation.

Liquida will receive CHF 4 million in fees in 2021.

According to the employment contract, SBF is entitled to a total of 1,200,000 (12%) Liquida tokens. The allocation in 2021 is as follows:

The well-known crypto trading exchange shows the following prices for Liquida tokens in CHF (closing price of the respective day):

Questions

1. What type of token are Liquida tokens?
2. What income will SBF realize from the tokens in 2021?
3. Can SBF apply partial taxation in accordance with Art. 20 para. ^1bis DBG for the free allocation of Liquida Tokens?
4. Are the tokens subject to wealth tax? If so, at what value are they to be declared as at 31.12.2021?

2. addition of facts - Proof of Stake

In 2023, SBF has 300,000 tokens blocked and delegates them to Liquida AG so that it can participate in the staking process. To do so, he must block the 300,000 tokens in his electronic wallet.

He receives the following statement on 15.10.2023:

Questions

1. Is the compensation from staking taxable?
2. How high is the taxable compensation?

3rd factual variant - right of participation

In deviation from the basic facts, 100,000 tokens with participation rights will be issued to finance this platform.

According to the employment contract, SBF is entitled to a total of 12,000 tokens with participation rights.

These are blocked for 10 years from vesting and are allocated to him as follows:

The following appropriation of profit will be approved at the AGM on September 15, 2021

Dividend per share: CHF 5.00

Profit distribution per investment token CHF 7.50

SBF holds the following interests as at the due date of the dividend:

Questions

1. What type of token is this?
2. Are the investment tokens issued with participation rights considered employee shareholdings within the meaning of Art. 17a ff DBG?
3. What income from the investment tokens with participation rights will SBF realize in 2021?
4. What income from the investment in Liquida will SBF realize in 2021?
5. Can SBF claim partial taxation on the "normal" shares and the investment tokens with participation rights in accordance with Art. 20 para. ^1bis DBG?

Case 5: Digital Native

1. crypto traders

1.1 Facts of the case

SBF works for an asset manager in asset management with a 100% workload.

He trades in highly volatile cryptos on a daily basis and has invested a significant portion of his assets in cryptos. He is currently making high profits.

SBF is constantly investing more and is financing this by taking out a consumer loan.

Due to his success with crypto trades, he is reducing his workload at the asset manager to 50%.

Questions

1. What is the general legal situation in practice regarding "professional crypto traders"?
2. How likely is it that SBF will be classified by the tax authorities as a professional securities trader or self-employed?
3. What must he pay attention to in order to avoid qualification as a self-employed person as far as possible?

2nd NFT influencer

2.2 Facts of the case

SBF lives in Canton W and has been working for HT Commerce AG for some time on a 100% contract. HT Commerce AG is active in the e-commerce sector.

In addition to his professional work, SBF has a great passion for photography and actively shares it on Facebook and Instagram. He is also interested in new technologies such as blockchain and the artistic applications in this context, and SBF has been heavily involved with NFTs since the beginning of 2021. He also actively shares this hobby on social media.

In August 2022, SBF invests CHF 30,000 in a new NFT project "Mad Lads" initiated by a friend (seed round). This friend invests his time to technically design the NFTs (unique art comic images). The CHF 30,000 are "used up" in the end.

According to the investment contract, SBF is to receive 45% of the profit from the project for its investment.

SBF has also made no commitment to market the NFT project. He voluntarily shares the success story of this NFT with his 45,000 followers on Instagram.

The NFT project has been hugely successful. The NFTs are sold in the community for ETH.

As at October 2022, SBF will transfer its profit share of 900 ETH (= 45% from the sale of NFT) to its wallet. This corresponds to a value of around CHF 2.5 million.

Question

1. Does the profit of CHF 2.5 million have tax consequences for SBF? If so, what and when?

3. founder of DAO

3.1 Facts of the case

SBF works as an IT specialist at a medium-sized IT company. He is also very interested in technology in his spare time, particularly in connection with the decentralized management and financing of projects.

In an online forum, he finds interested people with whom he would like to found a so-called "Decentralized Autonomous Organization" (DAO). The DAO is to be used to coordinate IT projects.

Most of the people come from Switzerland. They are considering the legal basis on which they would like to work together. They have done their own research and have seen that the Swiss association is often chosen as the legal form. A foundation is generally out of the question because it lacks the decisive DAO criterion of active "self-governance".

However, they do not opt for an explicit legal form and only establish their DAO "digitally". To do this, they create the technical basis for the DAO and "mine" 10,000,000 governance tokens. These governance tokens form the core of the DAO.

The governance tokens are stored in a locked DAO wallet and then distributed or reallocated to the DAO members over the years. The distribution key is based on the contribution principle. Undistributed governance tokens are inactive until they are distributed to a DAO member.

However, as a founding member of the DAO, SBF receives 500,000 "free" governance tokens in advance. With these, he hopes to gain various advantages in the coordination of and participation in IT projects.

Questions

1. What is a DAO?
2. What is a governance token?
3. How is the value of a governance token determined?
4. Does the "free" allocation of the 500,000 governance tokens have tax consequences for SBF, and if so, what are they?

Case 6: Portfolio valuation

1. facts (practical case)

SBF is a co-founder, board member and investor in Condor AG. Condor AG was founded with the aim of developing a global transaction system with its own cryptocurrency. At the beginning of 2018, SBF was offered the opportunity to acquire 20% of all C tokens issued at that time at a price of EUR 1,128,100. Compared with the purchase made by a third-party investor at the same time (1% of the tokens), this represented a monetary benefit of EUR 166,100, which SBF also declared in its 2018 tax return.

The acquisition was made by means of a Token Purchase and Delivery Agreement (TPDA) in April 2018. Payment of the EUR 1,128,100 was made in March 2019. By concluding the purchase agreement, SBF acquired the right to receive 20% of the C tokens at the agreed price in April 2022. At the time the contract was concluded, not all of the tokens had been issued. The full issue of tokens was not completed until March 2022. It is striking that there is a period of four years between the conclusion of the TPDA and the delivery of the tokens and that SBF was given 11 months to settle the tokens. A cross-comparison with the other token holders shows that they have to settle the tokens upon conclusion of the contract and delivery then takes place within 2 working days.

In the tax periods 2018 to 2021, SBF will declare the remuneration of the Board of Directors as income and the purchase price paid will be declared as assets at acquisition cost.

At the time of delivery of the C-tokens to SBF, they have a market value 10 times higher.

Questions

1. How is the purchase price agreed in 2018 to be assessed for tax purposes with the delivery of the tokens around 4 years later?
2. Is it correct that SBF will only declare the tokens at purchase price in its assets in the years 2019 to 2021?