Workshop by Silvan Guler and Daniel Bürki on the occasion of the ISIS) seminar on September 23-24, 2024 entitled "Investments in crypto assets"
Note: This language version is an automatically generated translation. The text may therefore contain linguistic and terminological errors.
view in original language (German)Simon Benjamin Fuchs (hereinafter “SBF”) works full-time at 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. Under a contractual agreement, token holders will receive 20% of SwissCo’s EBIT in the future.
According to the Terms and Conditions, of a total of 100 million tokens, the first 10 million (10%) 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 between CHF 3.50 and CHF 4.20 (average CHF 3.85).
SBF works 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 purchases these through Invest GmbH, in which he holds a 100% stake.
Under a contractual agreement, token holders will receive 20% of SwissCo’s EBIT in the future.
According to the Terms and Conditions, of a total of 100 million tokens, the first 10 million (10%) 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 between CHF 3.50 and CHF 4.20 (average CHF 3.85).
SBF is a professor of mathematics at ETH and, together with three colleagues, founded SwissCo AG, which offers services in the crypto sector. Both SBF and his colleagues each hold 25% of SwissCo’s shares. Starting next year, he will work 40% of the time 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 are acquired by his three colleagues. In a second round, an additional 500,000 tokens are created and acquired through a third-party trading platform.
Under a contractual agreement, token holders will receive 55% of SwissCo’s EBIT in the future.
According to the Terms and Conditions, of the total 1.5 million tokens, the first million 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 between CHF 3.50 and CHF 4.20 (average CHF 3.85).
Under a SAFT (Simple Agreement for Future Tokens), SBF and eight other investors grant SwissCo loans totaling CHF 500,000, which will be converted into tokens at a later date. SBF’s loan amounts to CHF 10,000. The investors receive interest at a rate of 3%.
If the ICO is successful, SBF may convert the face value of the loan into tokens with equity rights. This is done at the token sale price, which is determined during the ICO, reduced by a conversion discount of 20%.
The sale price of the tokens during the ICO has not yet been determined and is difficult to assess at the time the SAFT is executed.
Ultimately, the sale price of the tokens during the ICO is CHF 1.00 per token, meaning the CHF 10,000 loan from SBF is converted into 12,000 tokens (20% conversion discount).
The facts are essentially the same as in the basic scenario, with the exception that a conversion discount of 30% (instead of 20%) is granted.
The facts are essentially the same as in the basic scenario, with the exception that investment tokens are issued on a contractual basis and the conversion discount cannot be determined using financial mathematics.
1. What are the tax consequences for SBF at the time the loan is converted into tokens with a contractual basis with respect to the conversion discount?
The facts are essentially the same as in the base scenario, with the exception that investment tokens are issued on a contractual basis and the conversion discount cannot be determined using financial mathematics. In addition, 20 other investors, in addition to SBF, have granted loans totaling MCHF 1.
1. What are the tax consequences for SBF at the time of the conversion of the loan into tokens with a contractual basis with regard to the conversion discount?
SBF, who works full-time at Tax Office Z, is very interested in financial news in his spare time. In January 2024, he read in Bloomberg News and the Financial Times that the U.S. SEC had approved the first Bitcoin spot ETFs.
Now, a full-blown battle has broken out among asset managers over this new asset class. Among the largest crypto funds currently are the BlackRock iShares Bitcoin Trust (IBIT) with USD 22 billion and the Grayscale Bitcoin Trust (GBTC) with USD 14 billion in market capitalization. SBF is very enthusiastic about this new product and invests CHF 10,000 in BlackRock’s IBIT.
1. What type of asset is the IBIT?
SBF learned about airdrops from a colleague. He researches the topic on a “crypto-nerd” forum, and his curiosity about the Togo project is piqued.
During his research, he learns that Togo tokens are transferred to the wallets of registered community members. The airdrop is free but requires joining a Telegram group, registering, and liking posts by the project team on X, as well as collecting “Gems” or points, which serve as a measure of engagement within the community.
SBF is enthusiastic about the idea and decides to participate in the airdrop. He follows the instructions described on the airdrop platform and completes the tasks. By completing the tasks, SBF gradually collects some “Gems.”
After some time and successfully completing the required tasks, SBF has accumulated a total of 1,350 Gems. The airdrop is finally carried out, and SBF receives his Togo tokens. 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.
A few years ago, so-called “forks” occurred frequently.
The Ethereum blockchain was the first to do so. It 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).
As an “early adopter,” SBF had gotten into Bitcoin (BTC) early on, which is why he was also involved in both forks (BCH and BTG; both in a 1:1 ratio to BTC) in 2017.
However, SBF didn’t tell anyone about the “free” tokens he received and has kept them “hidden” in his online wallets to this day.
He has neither sold the new free tokens nor used them in any other way (e.g., staked them).
SBF wants to stay up to date and is therefore now inevitably focusing intensively on staking.
In January 2023, he decides to participate in a staking project. He has held the GNH tokens for some time and deposits them in a staking pool. After one year, SBF receives a reward of 50 GNH tokens for staking.
In January 2023, the GNH tokens have a market value equivalent to CHF 5 per token, and in January 2024, a market value equivalent to CHF 9 per token.
SBF is excited about the (financial) opportunities and wants to launch a project of his own.
He begins doing so in June 2024 and uses the CVA tokens held in his private assets as a validator. In return, he is promised a reward of 150 CVA tokens after one year.
SBF learns about the DEF token from a coworker and purchases 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 regularly conducting so-called 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.
SBF is a shareholder and employee of Liquida AG, headquartered in Zug. Liquida AG was founded in April 2020 with a share capital of TCHF 200 (2,000 shares with a par value of CHF 100).
Liquida AG aims to operate a crypto exchange platform that will enable its users to exchange tokens for fiat currency. Liquida AG is financed through fee revenue paid by users when exchanging tokens for 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, token holders are contractually guaranteed 40% of the aforementioned exchange fees as compensation.
In 2021, Liquida collects CHF 4 million in fees.
According to the employment contract, SBF is entitled to a total of 1,200,000 (12%) Liquida tokens. The allocation in 2021 can be broken down as follows:
The well-known crypto exchange shows the following prices for Liquida tokens in CHF (closing price of the respective day):
In 2023, SBF locks 300,000 tokens and delegates them to Liquida AG so that he can participate in the staking process. To do so, he must lock the 300,000 tokens in his electronic wallet.
On October 15, 2023, he receives the following statement:
In contrast to the basic scenario, 100,000 tokens with participation rights are 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 locked up for 10 years starting from the vesting date and are allocated to him as follows:
At the AGM on September 15, 2021, the following appropriation of profits is approved:
Dividend per share: CHF 5.00
Profit distribution per investment token: CHF 7.50
As of the dividend payment date, SBF holds the following stake:
SBF works full-time in asset management at an asset management firm.
He trades highly volatile cryptocurrencies daily and has invested a significant portion of his assets in cryptocurrencies. He is currently generating high profits.
SBF is continuously investing more and financing this by taking out a consumer loan.
Due to his success with crypto trades, he reduces his workload at the asset manager to 50%.
SBF resides in Canton W and has been employed full-time by HT Commerce AG for some time. HT Commerce AG operates in the e-commerce sector.
In addition to his professional work, SBF has a great passion for photography and actively shares his work on Facebook and Instagram. He is also interested in new technologies such as blockchain and their artistic applications; in particular, since early 2021, SBF has been deeply engaged with NFTs. He also actively shares this hobby on social media.
In August 2022, SBF invests CHF 30,000 in a new NFT project called “Mad Lads,” initiated by a friend (seed round). This friend invests his time in the technical design of the NFTs (unique art-comic images). The CHF 30,000 is ultimately “spent.”
According to the investment agreement, SBF is to receive 45% of the project’s profits for his investment.
SBF has also not undertaken any obligation to market the NFT project. He voluntarily shares the success story of this NFT with his 45,000 followers on Instagram.
The NFT project is a huge success. The NFTs are sold within the community for ETH.
As of October 2022, SBF will transfer his share of the profits—900 ETH (equivalent to 45% of the NFT sales)—to his wallet. This corresponds to a value of approximately CHF 2.5 million.
SBF works as an IT specialist at a medium-sized IT company. In his free time, he is also very interested in technology, particularly in relation to the decentralized management and financing of projects.
In an online forum, he finds like-minded individuals with whom he would like to establish a so-called “Decentralized Autonomous Organization” (DAO). The DAO is intended to coordinate IT projects.
Most of the people involved are from Switzerland. They are considering the legal basis on which they would like to collaborate. They have done their own research and observed that the Swiss association is often chosen as the legal form. A foundation is fundamentally out of the question because it lacks the crucial DAO criterion of active “self-governance.”
However, they ultimately decide against any explicit legal form and establish their DAO solely “digitally.” To do this, they create the technical foundation for the DAO and “mint” 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 subsequently distributed or reallocated to DAO members over the years. The distribution key is generally based on the contribution principle. Undistributed governance tokens remain inactive until they are distributed to a DAO member.
As a founding member of the DAO, however, SBF is allocated 500,000 “free” Governance Tokens in advance. With these, it hopes to gain a wide range of advantages in coordinating and participating in IT projects.
SBF is a co-founder, board member, and investor in Condor AG. Condor AG was founded with the goal of developing a global transaction system with its own cryptocurrency. In early 2018, SBF was offered the opportunity to acquire 20% of all C-tokens issued at that time for a price of EUR 1,128,100. Compared to a purchase made by a third-party investor at the same time (1% of the tokens), this constituted a monetary benefit of EUR 166,100, which SBF also reported in his 2018 tax return.
The acquisition was made via a Token Purchase and Delivery Agreement (TPDA) in April 2018. Payment of the EUR 1,128,100 is due in March 2019. Upon execution of 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 tokens had been issued yet. The full issuance of the tokens was not completed until March 2022. It is notable that there is a four-year period between the conclusion of the TPDA and the delivery of the tokens, and that SBF was granted 11 months to settle the tokens. A cross-comparison with the other token holders shows that they must pay for the tokens upon signing the contract, and delivery then takes place within 2 business days.
In the tax periods from 2018 to 2021, SBF reported the board of directors’ compensation as income, while the purchase price paid was reported as the acquisition cost in its assets.
At the time of delivery of the C-tokens to SBF, these have a market value 10 times higher.
