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    The question whether the issue of cryptographic tokens via initial coin offerings ICOs may be treated as a taxable event for VAT purposes has recently raised heated discussions between lawyers and tax authorities.

    As funds raised through such means of a crowdsale can be substantial e. Yet, many smaller start-up companies cannot afford to pay substantial percentages of hard-raised funds to the state budgets already in their fundraising phase. To young entrepreneurs, the possible obligation to pay tax before they even started to develop their products and services and well before such products and services have actually been offered on the market seems counterintuitive.

    In the following, these issues will be looked into in more detail to provide some possible answers. Despite this wording apart from being very broad is exact and also interpreted also by the CJEU in its numerous judgements, however, problems often arise in the case of new and unregulated kinds of transactions, involving digital assets or other innovative legal instruments, such as cryptographic tokens.

    To best approach this questions, one may be reminded that the VAT treatment of the issue of the tokens during an ICO largely depends on the legal status of the ICO and cryptographic tokens issued, [3] whereas their legal status is in turn dependent on their economic characteristics and substance. In the end, conclusions as to the VAT treatment of ICOs will also be tested against the normative framework regarding VAT treatment of multi-purpose vouchers, which, as it will be explained, in their substance resemble fundamental economic functions of utility tokens.

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    In legal terms, an initial coin offering may best be described as a means of crowdfunding by which funds are raised for a new venture through an issue of a new cryptographic token. On the other hand, they usually can be traded on secondary markets, such as online cryptocurrency exchanges [7] and later exchanged for services and products of the start-up company — the issuer of the token once such products and services are developed by the start-up and offered on the market.

    During the ICO stage, the fundraising function of a token is in the foreground, as it serves as a means of collecting funds for the development of future products and services by the start-up company issuing such token. In the following stage, when the start-up develops products and services and offers them on the market, the token is used as a means of payment for such services. Accordingly, specific activities concerning Bitcoin may fall within the exemption of Article 1 d of the VAT Directive.

    Also, the anonymity of the transactions could lead to difficulties in identifying taxable persons and place of supply. However, for the purposes of analyzing whether a token issue during an ICO also constitutes a taxable event and falls within the scope of EU VAT, the mentioned documents are only of a limited value.

    Namely, as mentioned, they only discuss particular economic activities concerning bitcoins, such as performing payments in bitcoins, the services of digital wallets, mining, and the operations of exchanges. Issuing tokens through an ICO, on the other hand, is not discussed in the documents. Consequently, in order to establish whether an ICO may give rise to any VAT liability, more thorough legal analysis i.

    In this connection it should first be noted that, according to the established case law of the CJEU, a supply of services is rendered for consideration within the meaning of Article 2 of the VAT Directive, and can, therefore, be subject to VAT, only if a direct link exists between the services supplied and the consideration received by the taxable person. Thus, it may be argued that, at the time of an ICO, no direct link as a precondition to the application of VAT exists between the tokens issued and the service rendered.

    Of course, any future use of such tokens as a means of payment and access to products and services offered by the start-up company once developedmay, in principle provided that other conditions are met be subject to VAT. Still, with regard to such future use of tokens for the consumption of services, the possibility of applying any of the exemptions provided by Article of the VAT Directive needs to be analysed in each particular case. The validity of such conclusion is further substantiated by the fact that the opposite standpoint i.

    The reason for such VAT treatment lies in the difficulties of establishing the direct link between the payment of the voucher itself and the services that can be at the moment of the purchase of the voucher only generally identified and will be consumed at a later date. Thus, one may argue that a parallel with utility tokens in this aspect is more than evident.

    Even the more so: A fortiori, at the time of issue of cryptographic tokens, services for which such token may be exchanged in the future usually do not even yet exist as they first need to be developed by the start-up IT development team.

    While this argumentation certainly holds for cases of early forms of value tokens such as bitcoinit should be recalled that different kind of tokens with substantially different features have emerged since then. Still, legal practitioners and ICO founding teams alike would appreciate if national tax authorities would in the future address such issues and publish appropriate written guidelines, as that would substantially contribute to greater legal certainty in the field of the tax treatment of businesses dealing with distributed ledger blockchain technologies.

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