Red Leafs Group AG

Blockchain and value added tax

Blockchain is on everyone’s lips – but no one is thinking about VAT! Analyze business cases, improve processes and optimize your VAT situation even in the new world of crypto-currencies and blockchain’s.

… Blockchain & Token – what is that anyway?
Blockchains represent continuously expandable digital databases, which consist of digital transaction blocks strung together and serve to manage data. A blockchain of one’s own or of a third party is used, among other things, to generate tokens. A token can be compared to a kind of voucher, which represents a right to a certain asset or service. Depending on their design, tokens can have and contain different functions.

Categorization of tokens and levels of design.
The VAT principles must also be applied to the assessment of tokens. This has to be done on the one hand on the level of the tokens and on the other hand on the level of the involved company.

The individual tokens are to be qualified according to content and function. In the case of mixed forms of tokens, complicated delimitation issues can quickly arise. Depending on the circumstances, optimization can be achieved by means of regulations on combinations of services or main/secondary services. In addition, especially in the area of electronic services, it is mandatory to document the place of performance or the investor’s domicile, since, for example, a service from a usage token to a customer abroad is not subject to domestic VAT. However, a VAT liability abroad must be checked.

An investor or trader may simultaneously generate taxable and exempt sales via the holding of tokens. Accordingly, the input tax deduction must then be adjusted in proportion to the existing tokens. In the case of operators of a virtual marketplace or an exchange platform for digital assets, on the other hand, delimitation issues arise due to the type of effective service and the type of compensation received. Here, it is important to conduct a functional analysis for VAT purposes across the entire value chain of the company.

Why is tax advice in the area of VAT and blockchain useful?
Especially in the area of VAT, differences in the tax assessment can arise depending on the design of a token. The qualification of the individual services, any optimization of processes and structures, and correct invoicing are decisive. It is important to examine the tax consequences in each individual case and with regard to the overall business activity of a company. Due to the high degree of internationalization, the environment of the parties must always be taken into account. The experts at RedLeafs will be happy to provide you with expert and individual advice on all these and further questions.

The most important facts at a glance:
The VAT principles sid also applicable to the new world and thus to tokens and the blockchain.
The VAT situation must be examined at the level of the token and at the level of the company concerned.
The location of the service recipients must be documented so that tax qualifications of the service can be made.