In September 2019, the German government published its widely perceived “Blockchain Strategy” and announced in it that it intends to “open German law to electronic securities”. The traditional German security is embodied in (physical) deeds. This traditional view of securities is likely to be dematerialized and will give way to a digital bond, which elevates so called STOs (security token offerings) to a high level of legal certainty in Germany. From a German tax perspective, the question is how such digital bonds are to be assessed under current tax regulations. This issue is addressed in the new publication by the Institute of Finance and Taxation, which includes the work of Poellath lawyers Dr David Hötzel and Dr Marcus Niermann. The publication aims to give a considerable impetus to researchers as well as practitioners in order to ignite an intensive and necessary dialogue with politicians and tax authorities on the tax implications of this form of corporate financing. The authors discuss the following ideas:
- In a liberal economy, the taxation of digital forms of financing has to bear in mind free market competition. Conventional forms of equity or debt financing should not have a competitive advantage or disadvantage over digital securities (burden neutrality).
- In addition, in our globally interwoven economy, competition with other legal systems cannot be ignored. In this competition, German tax law should (at least attempt to) ensure that it does not give resident companies as well as companies wishing to relocate any incentive to move away or not to move to Germany for tax reasons (site neutrality).
- Finally, in times of accelerated digitization, tax policies should not chase new developments by enacting nitty gritty case-by-case regulations. Tax policies should only broaden existing abstract-general regulatory regimes to new technological developments where necessary (technological neutrality).
Applying these basic principles, the authors show in detail that corporate financing through crypto token emissions raises various issues of legal interpretation with regard to income tax and accounting, value added tax as well as inheritance and gift tax. The authors aim to suggest viable solutions to these questions in order to eliminate the existing legal uncertainty in a timely manner and to increase the attractiveness of a German token emitting company. In particular, the following questions are answered:
- How should a token emission be treated in the (tax) balance sheet of the issuing company? Under what conditions is the recognition of a (deferred) liability possible? When do companies need to show a (taxable) revenue?
- How should utility tokens and equity tokens be treated for VAT purposes? Can utility tokens be treated as vouchers for VAT purposes?
- Is a conservation of business assets in the temporal environment of token issuance eligible for inheritance tax? How is the concept of financial resources for inheritance tax purposes to be assessed in this context?
These and other questions are addressed in the current publication of the Institute for Finance and Taxation (ifst) no. 533 “Corporate Financing by Issuing Crypto Tokens – Taxation in Germany and Switzerland” (in German).