Blockchain: Favourable VAT treatment of asset transfers into a Swiss foundation

Initial coin offerings (ICOs) are a common and very attractive way of funding new business ventures in the crypto-market. When preparing for an ICO, the use of a Swiss foundation as owner of the underlying intellectual property, which drives the potential value of such business ventures, is very common, in particular to guarantee that the assets become legally separate from the founders. However, the transfer of assets to a Swiss foundation has to be carefully structured to avoid adverse VAT consequences under the VAT concept of acquisition tax.

In Switzerland, services (including rights) acquired from a third party located abroad are in principle subject to acquisition tax of 7.7% on the agreed consideration at the level of the Swiss domiciled recipient. In case of a transaction between related parties for no consideration, the acquisition tax becomes due on the deemed amount that would have been agreed between independent third parties (i.e. on the fair market value of the transferred asset).

For VAT registered entities entitled to the full input VAT deduction, paying the acquisition tax should not result in a cash leakage, since the tax due can be reclaimed as input VAT. However, in case the acquired services/rights relate to a VAT exempt business activity or to a non-entrepreneurial activity of the Swiss recipient, or in case the recipient is not registered for VAT purposes, the acquisition tax paid may represent a real cost.

In connection with blockchain-based software platforms, the intangible assets transferred from abroad to a Swiss foundation may easily exceed a value of several million USD and can create a substantial acquisition tax burden at the level of the Swiss foundation. However, in case it can be demonstrated that the Swiss foundation and the transferor do not qualify as related parties from a legal and economic perspective, the transfer of rights may qualify as a donation. Due to the absence of any supply, donations do not qualify as a consideration and would accordingly not trigger any acquisition tax.

The Swiss Federal Tax Administration recently confirmed in an advance tax ruling that donations of intangible assets from a foreign legal entity to a Swiss foundation is outside the scope of Swiss VAT. This applies in cases where it can sufficiently demonstrated that the foundation and the transferor (donor) are not related parties. The favourable VAT treatment of donations in this context provides an added benefit for using a Swiss foundation for an ICO or as operator of a blockchain based platform.

Nevertheless, when establishing a Swiss foundation for the purpose of transferring the ownership of intellectual property to the said foundation, it is advisable to analyse the facts and circumstances to determine whether evidence for a disaffiliation exist, in order to qualify as exempt from acquisition tax and to obtain an advance tax ruling from the Swiss Federal Tax Administration.

Matthias Höhn

T: +41 58 279 70 18

E: mhoehn@deloitte.ch

Loris Lipp

T: +41 58 279 66 72

E: llipp@deloitte.ch