Author: Markus Vogel, Chair CVA Tax / Accounting / Structuring Working Group and Tax Partner at KPMG Switzerland
After the release of the Q&A on special accounting topics last December 2018 (Accounting of ICO’s with Utility Tokens), EXPERTsuisse in collaboration with CVA’s Working Group for Tax and Accounting has further clarified the Swiss accounting guidelines for asset token ICOs. The accounting guidelines for asset token ICOs have been jointly published by the EXPERTsuisse with the Crypto Valley Association. This reinforces the commitment of the leading institution in the Swiss accounting landscape to further clarify the accounting treatment of crypto transactions.
EXPERTsuisse, the Swiss Expert Association for audit, tax and fiduciary practitioners, has mandated its Accounting Standards Committee to establish the Swiss ICO accounting guidelines for asset tokens in close collaboration with the CVA Working Group Tax / Accounting / Structuring. The result of this continued great collaboration can be accessed below and also contains:
- Additional clarifying statements in respect of the Swiss accounting guidelines for utility token ICOs which have been published in December 2018:
- Treatment of genesis block generation in light of a subsequent token sale;
- Swiss foundations as token issuing entities,
- Treatment of capital gains and losses in cryptocurrency holdings raised through an ICO;
- Treatment of development of proprietary blockchain protocols.
- The accounting principles applicable to cryptocurrencies such as Bitcoin.
What are the new guidelines?
The new accounting guidelines detail the accounting treatment of so-called asset tokens. Asset tokens generally represent any kind of tokenised asset which carry either an ownership right in respect of an asset or company resp. a relative right regarding future profits or cash flows.
Within these accounting guidelines, the accounting treatment is illustrated at hand of two distinct case studies. The first case study represents the issuance of the IMMO Coins which are legally structured as participation certificates (Partizipationsschein) for the financing of real estate acquisitions. The accounting treatment at hand does not materially deviate from the one applied to the issuance of non-tokenised participation certificates.
The second case study – “ROB” – entails the issuance of ROB Coins in the context of the pre-financing of the development and marketing of a robot. In exchange for this pre-financing, the token purchasers acquire the right to a 10%-revenue participation in the issuing company. The accounting treatment closely follows the same analogy as used for the utility token of the advance payment without any repayment obligation.
At the case at hand, there are two factual obligations borne by the ICO company: i) a development obligation of a robot as well as ii) a marketing obligation of the robot. Hence, the respective ICO company has the implicit order from the token purchasers to put sincere efforts into the development and marketing of the robot. These efforts are considered to be financed at hand of so-called advance payments without repayment obligations.
Any product development expense directly attributable to the ICO project can be deducted from the received advance payments (without repayment obligations). Further on, if there is still an excess amount of advance payments (without repayment obligations) after the completion of the product development stage of the robot, any relevant marketing expense for the robot can be deducted from this liability until it’s fully absorbed.
As outlined in the beginning, the publication of the Swiss ICO accounting guidelines for asset tokens confirms the commitment of leading accounting institution in Switzerland to further improve the local conditions for crypto businesses. The CVA Tax / Accounting / Structuring Working Group maintains close ties to EXPERTsuisse and will inform you in due time about the planned meet-up activity relating to these new accounting guidelines.