Initial Coin Offering an Overview of the Legal Structure in Liechtenstein and Switzerland

Marc-André Beat Schauwecker Initial Coin Offering An overview of the legal structure in Liechtenstein and Switzerland

Les médias n’arrêtent pas de parler ces jours de la technologie « Blockchain » et des monnaies cryptées. La diffusion des monnaies cryptées a amené à se demander comment les classer en droit des marchés financiers, droit civil et fiscal. Les « Initial Coin Offerings » (ICOs) relèvent-elles des lois actuelles sur les marchés financiers et comment peuvent-elles être réglementées ? La contribution examine les questions de réglementation, de fiscalité et de structure juridique concernant les ICOs respectivement les « Token Generating Events » (TGEs). (jp)

Catégories d’articles: Contributions Domaines juridiques: Informatique et droit; Droit du marché des capitaux; Droit ﬁscal

Proposition de citation: Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018

ISSN 1424-7410, https://jusletter.weblaw.ch, Weblaw AG, [email protected], T +41 31 380 57 77

Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018

Contents

I. Introduction A. Blockchain B. Initial Coin Offering / Token Generating Event a. Reasons for the growing popularity of the ICO b. Procedure II. Legal classification A. In Switzerland a. Regulatory classification of the ICO b. Corporate structuring for an ICO aa. Foundation bb. Corporations and associations c. Tax structuring for an ICO B. In Liechtenstein a. Regulatory classification of the ICO b. Corporate structuring for an ICO c. Tax structuring for an ICO III. Conclusion

I. Introduction A. Blockchain

[Rz 1] When it comes to project financing, start-ups and established companies are increasingly deciding – within the framework of an «ICO» («Initial Coin Offering») – to issue a crypto currency based on Blockchain technology (hereinafter «Token»). Even though the term «Token» is well established in the Blockchain world, this term has not yet found a clear definition. The draft Liechtenstein «Blockchain Act» (VTG)1 introduces «Token» as a new legal element embodying rights of all kinds. According to Art. 5 para. 1 item 1 VTG, a Token is information on a «trust- worthy technology» system which can embody justifiable rights of claim or membership vis-à-vis a person, rights to property or other absolute or relative rights, and which ensures assignment to one or more public keys. With the generation of Tokens, no new right is created but an existing right is subjected to the transfer order and the legitimation order of the underlying Blockchain.2 [Rz 2] These Tokens can perform various functions such as payment, access rights to a platform or a kind of dividend or voting right in a company. In this article, the term Token is used to describe the information on a «Digital Ledger Technology» (DLT) protocol that represents the rights of the Token owner described in the terms of the protocol. Blockchain is a specific type or subset of DLT. The term «Blockchain»3 literally means a chain of data blocks. The data are grouped into discrete «blocks» and these blocks are concatenated, i.e. chained, in that each new block appended to the chain is connected to the previously appended block by a mathematical al-

1 Gesetz über auf Vertrauenswürdigen Technologien (VT) beruhende Transaktionssysteme (Blockchain-Gesetz; VT-Gesetz; VTG), https://www.llv.li/files/srk/vnb-Blockchain-gesetz.pdf (accessed 15. September 2018). 2 Vernehmlassungsbericht der Regierung betreffend die Schaffung eines Gesetzes über auf Vertrauenswürdi- gen Technologien (VT) beruhende Transaktionssysteme (Blockchain-gesetz; VT-Gesetz; VTG) und die Abänderung weiterer Gesetze of 28. August 2018, https://www.llv.li/files/srk/vnb-Blockchain-gesetz.pdf (accessed 15. September 2018). 3 The Blockchain is a decentralised Internet-based custody general ledger or account (see Mirjam Eggen, Chain of Contracts, in: AJP 3 [2017]).

2 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018 gorithm known as a «cryptographic hash function». The hash function generates a speciﬁc string (the «hash value») for the previously appended block of data and ensures that there is only one unique value for each possible set of input data. This hash value is then incorporated into the newly appended block together with the new data. To put it simply, the Blockchain functions like a ledger that records the transactions chronologically block by block and stores them un- changeably in that any amendment to the data in a given block would change the computed hash value of that block, which would then not match the hash value incorporated into the subsequent block. Each user of the network (a «node») can choose to maintain a complete copy of the ledger (hence «Distributed Ledger»); such a user is a «full Blockchain node». In the case of a public Blockchain, any person can see all the processed transaction data (such as sending account, receiving account, booked transaction and timestamp). Certain nodes will process data concerning new transactions in order to create the proposed new block to append to the chain; these nodes may be called «block producers». Under a so-called «proof-of-work» Blockchain protocol, block producers called «miners» propose each new block; for each new block, one miner which has also successfully solved a complex mathematical problem («proof» of its «work») is selected at ran- dom to have its proposed new block appended to the chain and to be rewarded by the issuance of new Tokens, such Tokens being credited to its account in the new block. Full Blockchain nodes update their copies of the Blockchain with the new block produced by the successful miner; they can compare their copies of the Blockchain with one another and verify the validity of the chain of hashes and conformance with the underlying protocol, thereby establishing «distributed con- sensus» regarding the latest state of the Blockchain once a threshold of agreement is reached. An inconsistent or otherwise non-conforming new block would not be recognised as valid by independent full nodes, thus depriving the miner of any potential reward and rendering its work wasted, and incentivising the accurate processing of transaction data.4 [Rz 3] Thus, transaction processing takes place on a «decentralised» basis in a peer-to-peer network without an intermediary. The Blockchain protocol ensures that a given Token cannot be disposed of more than once and thus solves the so-called «double spending» problem.5

B. Initial Coin Offering / Token Generating Event a. Reasons for the growing popularity of the ICO

[Rz 4] An Initial Coin Oﬀering (ICO) or Token Generating Event (TGE) is similar to a crowdfunding method in which investors provide virtual currency to support companies in pre-ﬁnancing their services or products. A crowdfunding platform acts as an intermediary between investors

4 Jana Essebier/Dominic A. Wyss, Von der Blockchain zu Smart Contracts, in: Jusletter 24. April 2017; Martin Hess/Patrick Spielmann, Übertragung von Vermögenswerten auf der Blockchain, in: Jusletter 4. Dezember 2017, p. 2; Martin Hess/Patrick Spielmann, Cryptocurrencies, Blockchain, Handelsplätze & Co. – Digitalisierte Werte unter Schweizer Recht, in: Kapitalmarkt – Recht und Transaktion XII. – Zürich, 2017, p. 145–202. 5 Jana Essebier/Dominic A. Wyss, Von der Blockchain zu Smart Contracts, in: Jusletter 24. April 2017; Martin Hess/Patrick Spielmann,Übertragung von Vermögenswerten auf der Blockchain, in: Jusletter 4. Dezember 2017, p. 2; Robby Houben/Alexander Snyers, Cryptocurrencies and blockchain, Legal context and implications for ﬁnancial crime, money laundering and tax evasion, Study requested by the TAX3 committee, July 2018, www.europarl.europa.eu/RegData/etudes/STUD/2018/619024/IPOL_STU(2018)619024_EN.pdf (accessed 15 August 2018); Benedikt Seiler/Daniel Seiler, Sind Kryptowährungen wie Bitcoin (BTC), Ethereum (ETH), Rip- ple (XRP) und Co. als Sachen im Sinne des ZGB zu behandeln?, in: sui-generis 2018, p. 149.

3 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018 and issuers and may require a banking or securities dealer licence or a collective investment scheme (CISA/KAG) licence. A distinction is made between 4 types of crowdfunding:

1. Crowddonating6 2. Crowdsupporting7 3. Crowdlending8 4. Crowdinvesting9

[Rz 5] ICOs are more like a mixture of crowdfunding and crowdinvesting, because investors are hoping for a higher profit if the Tokens establish themselves as crypto currency and are traded on marketplaces.10 Many ICO projects want to create a positive network effect and provide the value increase to the Token owners. You need Tokens to take advantage of the network, so the Token value correlates with the value of the network. The more attractive the network, the higher the Token demand. ICOs provide a way to monetise the positive network effect.11 Coins or Tokens are sold against crypto currencies. The goal of an ICO is often that the issued coins or Tokens do not grant any rights against the issuing company.12 The ICO/TGE differs from traditional capital procurement measures such as raising debt or equity on the capital markets. Depending on the project, the Tokens can represent shares in a company or rights to use a product. Therefore, ICOs are sometimes referred to as a kind of crowdfunding for start-ups in the crypto currency sector. This alternative, ICO-based fundraising method experienced a massive upswing in 2017, when a total of US$3.8 billion was raised, and in the first two quarters of 2018, when almost US$12 billion was raised. In contrast to conventional angel or venture capital early-stage financing, ICO projects are not designed for multiple financing rounds. Since there is considerable interest in

6 Or donation-based crowdfunding: money is collected for an idealistic or charitable purpose. The donor receives no return, but his support is in the form of a donation. 7 Also known as reward-based crowdfunding: in exchange for his contribution, the donor usually receives a one- off service of an ideal nature or low monetary value, e.g. a thank-you note or admission to a theatre. The desired end product (e.g. a music album, a newly developed computer game or a new product) offered in return for the support. 8 A loan has been granted by several private individuals to another private individual via an intermediary platform. The return owed consists of the repayment of the capital provided and its interest. It is intended that the exception contained in the Banking Ordinance for the receipt of funds for settlement purposes (Art. 5 para. 3 lit. c Banking Ordinance, Verordnung über die Banken und Sparkassen vom 30. April 2014 [BankV; SR 952.02]) should explicitly apply for a maximum settlement period of 60 days (instead of, as in previous practice, only for settlement within 7 days). This change gives crowdlending platforms considerably more time to collect money for borrowers from several lenders. 9 Also known as equity-based crowdfunding: The consideration for the invested capital consists of participation rights and – if applicable – a participation in the success of the existing or to be founded company; see EuropaInstitut an der Universität Zürich, Dieter Gericke (Hrsg.), Private Equity V Fundraising, Investition, Re- alisation, Reinvestition – Aktuelle Entwicklungen und Herausforderungen im Ökosystem Private Equity, 2016, https://www.rwi.uzh.ch/dam/jcr:6f696f75-ff03-47fd-8efd-288d5eb5e5b5/02_von_der_Crone_Projer.pdf (accessed 15. September 2018). 10 Michelle Berger, Schneller, effizienter und ohne Banken: ICOs als dezentrale Unternehmensfinanzierung?, DZ Bank Gruppe Innovationsblog, 2. August 2017, https://innovationsblog.dzbank.de/2017/08/02/schneller- effizienter-und-ohne-banken-icos-als-dezentrale-unternehmensfinanzierung/; EuropaInstitut an der Universität Zürich, Dieter Gericke (Hrsg.), Private Equity V Fundraising, Investition, Realisation, Reinvestition – Aktuelle Entwicklungen und Herausforderungen im Ökosystem Private Equity, 2016, https://www.rwi.uzh.ch/dam/jcr:6f696f75-ff03-47fd-8efd-288d5eb5e5b5/02_von_der_Crone_Projer.pdf (accessed 15. September 2018). 11 Lars Klöhn/Nicolas Parhofer/Daniel Resas, Initial Coin Offerings (ICOs), in ZBB/JBB, 2/18, p. 92. 12 For this reason, an attempt was made to qualify ICOs as "Utility Tokens". However, since FINMA is now focusing on functionality, such Tokens are regarded as "Asset/Security Tokens" and capital market law is applicable. It is therefore likely that more Asset Tokens will be issued and fewer Utility Tokens.

4 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 the field of ICOs on the part of practitioners in Liechtenstein and Switzerland, the private law and financial market law implications of this alternative form of financing are explored below.13 b. Procedure

[Rz 6] Certain practices have developed around these alternative, Blockchain-based financing models.14 An ICO/TGE usually proceeds as follows: • The business model and the optimal legal structure are discussed in a kick-off event. The choice of the legal form of the issuer or the legal structure of the ICO has an influence on the tax assessment. • Subsequently, a corporate entity such as a foundation or private company limited by shares (AG, GmbH) are founded and an «approval» is obtained from the supervisory authority (FINMA in Switzerland and FMA in Liechtenstein). The Token classification of the financial market supervisory authority15 can also be used in a similar way for an initial tax assessment of a Token, but it is advisable to discuss the specific individual case with the responsible tax authorities in advance to obtain a so-called «tax ruling», as there are neither specific tax law bases nor case law or established practice of the tax authorities.16 • A description of the project, the product or service and the financing via ICO is published in a so-called «white paper». • Often a so-called «pre-sale» takes place. In order to finance the ICO/TGE, Tokens/coins can be sold in advance and issued later at the time of the ICO/TGE. Early supporter agreements or contracts in the form of a «simple agreement for future Tokens» («SAFT»)17 are concluded for this purpose.

13 Oliver Völkel, Initial Coin Offering aus kapitalmarktrechtlicher Sicht, ZTR 03/2017; Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, AJP 2018, 89; Lukas Müller/Thomas Stoltz/Tobias A. Kallenbach, Liberierung des Aktienkapitals mittels Kryptowährung, AJP 2017, 1318; Christian M. Piska, Kryptowährungen und ihr Rechtscharakter – eine Suche im Bermuda-Dreieck, ecolex 2017, 632; Piska/Völkel, Kryptowährungen reloaded – auf dem Weg aus dem Bermuda-Dreieck, ecolex 2017, 816; Oliver Völkel, Privatrechtliche Einordnung der Erzeugung virtueller Währungen, ecolex 2017, 639; Oliver Völkel, Privatrechtliche Einordnung virtueller Währungen, ÖBA 2017, 385; Aline Darbellay/Michel Jose Reymond, Emission et negoce de jetons digitaux, EF 17; Patrik Eberle, ICO Markt 2018 – $12 Milliarden, während bereits 800 tote Coins im Umlauf sind, Concierge, 3. July 2018, https://coincierge.de/2018/ico-markt-2018-12-milliarden-waehrend-bereits-800-tote-coins-im- umlauf-sind/ (accessed 15. September 2018); Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, Advantages and Limitation in the Choice of the Adequate Legal Form, AJP 1/2018, p. 89 ff. 14 Lukas Müller/Milena Reutlinger/Philippe J.A. Kaiser, Entwicklungen in der Regulierung von virtuellen Währungen in der Schweiz und der Europäischen Union, p. 80ff. 15 Swiss Financial Market Authority FINMA, Initial Coin Offerings (ICOs) Guideline of 16 February 2018, p. 2ff. 16 Tobias F. Rohner/Andrea B. Bolliger, Mehrwertsteuerliche Aspekte von Initial Coin Offerings: die Ausgabe von Asset Token stellt keinen Umsatz dar, In: Expert Focus, Zürich, Jg. 92(2018), Nr. 8, p. 638–643. 17 Simple Agreement for Future Tokens (SAFT); Borden Ladner Gervais LLP, Simple Agreements for Tokens («SAFTs») and the Regulatory Risk of ICOs and Token Sales, Lexology, 15. Februar 2018, https://www.lexology.com/library/detail.aspx?g=8b98d4c2-dc5f-4787-b389-f7694e48eeec (accessed 10. October 2018).

5 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018

• A Smart Contract18 – a software programme that runs on a Blockchain, most frequently the Ethereum Blockchain – is created. This programme is necessary for the subsequent generation of Tokens and their distribution to participants who have contributed crypto currency. • The ICO/TGE is typically realised by means of an ERC20 Token on the Ethereum Block- chain19 and the oﬀer on a website. Investors send ﬁnancial means (usually crypto currencies such as Ether) to the Smart Contract, which stores them and distributes the corresponding quantity of the new Token at a later date. The issued Tokens can be stored by third parties (wallet providers) using software that stores the pair of keys, public and private, that enable the holder to receive Tokens into an account (connected to the public key) and monitor the account balance via the Blockchain and (using the private key) to send the Tokens to other accounts. • The Tokens can be made tradable using crypto currency trading platforms. Upon comple- tion of the funded project, investors may exchange their Tokens for other crypto currencies or spend or otherwise apply the Tokens to receive or access services.20 [Rz 7] Speculators have no interest in the end product, but speculate that the project will be successful and that the demand for the Tokens to use the product or service will increase sharply. Thanks to the limited supply of these Tokens, the value is expected to rise above the original issue price, thus allowing capital gains to be realised. TGE participation can also be a worthwhile investment opportunity for future users of the developed solution, especially as the service can be reserved at a certain discount.21

II. Legal classiﬁcation A. In Switzerland a. Regulatory classiﬁcation of the ICO

[Rz 8] Clariﬁcation of the legal deﬁnition of Tokens is fundamental to the legal certainty of any company providing or planning to provide services on Blockchain systems.22

18 The Smart Contract is more the execution aid for the contract than the contract itself. The Smart Contract is the al- gorithm embedded in the DLT protocol that creates, modifies and transfers these rights according to the terms of the protocol. Smart Contracts can live in a Distributed Ledger and, for example, be executed automatically when a certain event occurs. The interaction between the Token and the Smart Contract enables a variety of legally relevant transactions with regard to the creation of different rights and the transfer of these rights (see Stephan D. Meyer/Benedikt Schuppli, «Smart Contracts» und deren Einordnung in das schweizerische Vertragsrecht, recht – Zeitschrift für juristische Weiterbildung und Praxis 2017, 204). 19 The Ethereum platform represents a decentralized digital IT infrastructure on which decentralized computer pro- grams (so-called Dapps) can be executed by means of so-called Smart Contracts. In order to use this computer capacity, the network’s own Token «Ether» must be used. The proceeds do not flow to a centrally organised system operator but go to the one who offers the computing capacities. The so-called miners receive «Ether» for the newly created block of the Ethereum Blockchain and the users have to pay transaction fees («gas»); see Lars Klöhn/Nicolas Parhofer/Daniel Resas, Initial Coin Offerings (ICOs), in: ZBB/JBB, 2/18, p. 92. 20 Matthias Langer/Thomas Nägele, Blockchain- und Tokenbasierte Unternehmen in Liechtenstein – Steuerliche und rechtliche Fragen und Antworten, IWB, 6/2018, p. 240;Finanzmarktaufsicht Liechtenstein (FMA), Faktenblatt «Initial Coin Offering», Stand: 1. Oktober 2018, https://www.fma-li.li/files/fma/fma-faktenblatt-ico.pdf. 21 Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 ff. 22 Vernehmlassungsbericht der Regierung betreffend die Schaffung eines Gesetzes über auf Vertrauenswürdi- gen Technologien (VT) beruhende Transaktionssysteme (Blockchain-gesetz; VT-Gesetz; VTG) und die

6 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018

[Rz 9] With the ICO Guidelines of 16 February 2018, the Swiss Financial Market Authority (FINMA) presented the following Token classification: «Payment, Utility or Investment Tokens, as well as hybrid Tokens. Tokens classified as hybrid must comply with the supervisory requirements of all the relevant Token categories. FINMA bases its assessment on the original intention of the Token and not on how the Token could be designated or used by third parties. For example, a Utility Token on which third parties speculate is not automatically treated as a security. In practice, Tokens almost always have hybrid forms: 99% of Utility Tokens or Security Tokens also serve as a means of payment in their network or within the user group (community), i.e. they are also Payment Tokens. Art. 2 of the Federal Act on Currency and Payment Instruments (WZG) defines payment instruments in Switzerland. Accordingly, Payment Tokens are at most regarded as an alternative means of payment, but in regulatory practice they are to be treated in many respects like the regulated «legal means of payment».23 Some of the best known examples of Payment Tokens are Bitcoin (BTC), Ether (ETH) and Ripple (XRP). They do not embody any claims against the issuer and serve as a means of payment for the purchase of services or goods or as a means of transferring money or other assets. Payment and Utility Tokens are generally not considered to be securities. The Utility Tokens provide access to a digital service or use provided on or through a Blockchain infrastructure. They often serve as a reward for network users for the services they provide on the platform. The issuance of a pure Utility Token does not normally in- volve any financial intermediary activity within the meaning of the Anti-Money Laundering Act («AMLA/GwG») and, if the payment is only a secondary purpose, the issuance is not subject to AMLA/GwG. Utility Tokens can only be used in the issuing platform’s own network. Investment Tokens (Asset Tokens) embody assets and represent debt rights vis-à-vis the issuer or membership rights and are equivalent to shares, bonds or derivatives. According to FINMA guidance, Investment Tokens are treated as securities. Tokens that are classified as securities are not subject to AMLA/GwG, but trading in securities is subject to AMLA/GwG pursuant to Art. 2 para. 3 lit. c AMLA/GwG.24 [Rz 10] According to Art. 2 lit. b Financial Market Infrastructure Act («FinfraG») in conjunction with Art. 2 para. 1 Financial Market Infrastructure Ordinance, «securities» («Effekten») com- prise standardised certificates («Wertpapiere»), uncertificated securities («Wertrechte»), derivatives and intermediated securities («Bucheffekten») that are suitable for mass trading:25 • in the same structure (interest rate, term) and denomination (amount); • offered to the public or placed with more than 20 clients;

Abänderung weiterer Gesetze of 28. August 2018, https://www.llv.li/files/srk/vnb-Blockchain-gesetz.pdf (accessed 15. September 2018). 23 Ronald Kogens/Catrina Luchsinger Gähwiler, Ein 360-Grad-Blick auf Token, in Expert Focus 8/17, p. 589 ff.; Blockchain Taskforce, Stärkung des Blockchain-Standorts Schweiz, Whitpaper der Blockchain Task- force, April 2018, https://cryptovalley.swiss/?mdocs-file=2768; http://web1897.login-12.loginserver.ch/wp- content/uploads/2018/04/Whitepaper_Matterhorn-1.pdf (accessed 10. October 2018); Tobias F. Rohner/Andrea B. Bolliger, Mehrwertsteuerliche Aspekte von Initial Coin Offerings: die Ausgabe von Asset Token stellt keinen Umsatz dar, in: Expert Focus, Zürich, Jg. 92(2018), Nr. 8, S. 638–643; Swiss Financial Market Authority FINMA, Initial Coin Offerings (ICOs) Guideline of 16 February 2018, p. 2 ff. 24 Tobias F. Rohner/Andrea B. Bolliger, Mehrwertsteuerliche Aspekte von Initial Coin Offerings: Die Ausgabe von Asset Token stellt keinen Umsatz dar, in: Expert Focus, Zürich, Jg. 92 (2018), Nr. 8, p. 638–643; Blockchain Taskforce, Stärkung des Blockchain-Standorts Schweiz, Whitpaper der Blockchain Taskforce, April 2018, http://web1897.login-12.loginserver.ch/wp-content/uploads/2018/04/Whitepaper_Matterhorn-1.pdf (accessed 10. October 2018). 25 Eidgenössisches Finanzdepartement EFD, Erläuterungsbericht zur FinfraV vom 20. August 2015 (zit. Erläuterungsbericht FinfraV 2015).

7 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018

• unless they are specially created for individual counterparties.26 [Rz 11] In the position paper of the Blockchain Taskforce, Stengel/Glarner argue that if a payment function is added to a Utility Token, it should be assessed whether this is merely an acces- sory «secondary function» that is added to a (main) usage function outside the financial area, or whether the payment function should also be regarded as the main function.27 In my opinion, such a Token could be used not only as an access Token but also as a Payment Token on other platforms at a later date, and therefore it is often not possible to speak of a secondary purpose. [Rz 12] FINMA does not only distinguish between the three different Token classes but also between different developmental stages within these classes. Investment Tokens are in principle treated as mature Tokens and subject to Swiss securities law provided that the rights are standardised and suitable for mass trading. Accordingly, the Tokens issued are regarded as «securities» («Effekten») within the meaning of FinfraG as soon as they are standardised and suitable for mass trading as set out above. In the case of «pre-financing» («Vorfinanzierung»), there is no Token at the time the funds are raised. Therefore, no means of payment is issued and there is no financial intermediary activity on the part of the issuer. With «advance sales» («Vorverkauf», or so-called voucher Tokens), an investor has the option of exchanging a Token A for a Token B (which does not yet exist) at a later date. However, there is no means of payment yet, so there is no issuance of a means of payment. Furthermore, there is no financial intermediary activity on the part of the issuer, which is why AMLA/GwG does not apply. In the case of the issuance of «pre-functional Tokens», the Token issued does not yet function as a means of payment, as the acceptance point does not exist or is yet to be fully developed. Since the issuer intends to provide acceptance points for the Token in the future, a means of payment has been issued and there may be a financial intermediary activity of the issuer and therefore the applicability of the AMLA/GwG must be considered. The same applies to «functional Tokens», which are fully functional and are already issued at time of the ICO/TGE. Pre-sale may, under certain circumstances, be a prohibited banking activity involving the receipt of deposits and their solicitation.28 [Rz 13] Investment Tokens are functionally comparable to equities, bonds or derivative financial instruments. FINMA considers SAFT-like pre-financing issuances to be subject to Swiss securities law. In this case, the prospect of receiving Tokens in the future, where the Tokens or the underlying Blockchain are yet to be developed, is issued to the investors when the funds are raised.29 [Rz 14] As a matter of principle, FINMA does not classify the Token issuance as the taking of a deposit (Einlage) within the meaning of the Banking Act because it is usually not associated with repayment claims. There is therefore no licensing requirement under the Banking Act. However,

26 Martin Hess/Patrick Spielmann, Cryptocurrencies, Blockchain, Handelsplätze & Co. – Digitalisierte Werte unter Schweizer Recht, in: Kapitalmarkt – Recht und Transaktion XII. – Zürich, 2017, p. 145–202. 27 Blockchain Taskforce, Positionspapier zur rechtlichen Einordnung von ICOs, April 2018, http://www.ibr.unibe.ch/unibe/portal/fak_rechtwis/c_dep_private/inst_bankrecht/content/e7718/e675035/ e675547/Positionspapier_Legal_ger.pdf (accessed 15. September 2018). 28 Blockchain Taskforce, Positionspapier zur rechtlichen Einordnung von ICOs, April 2018, http://www.ibr.unibe.ch/unibe/portal/fak_rechtwis/c_dep_private/inst_bankrecht/content/e7718/e675035/ e675547/Positionspapier_Legal_ger.pdf; Lars Klöhn/Nicolas Parhofer/Daniel Resas, Initial Coin Offerings (ICOs), in ZBB/JBB, 2/18, S. 92 (accessed 15. September 2018). 29 FINMA, Wegleitung für Unterstellungsanfragen betreffend Initial Coin Offerings (ICOs) vom 16. Februar 2018, p. 5; Lars Klöhn/Nicolas Parhofer/Daniel Resas, Initial Coin Offerings (ICOs), in ZBB/JBB, 2/18, p. 99.

8 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 if an ICO does not achieve the capitalisation target, so that the transaction is reversed, a «banking transaction» may exist.30 [Rz 15] Furthermore, the provisions of the Collective Investment Schemes Act (CISA/KAG) are only relevant if funds received are managed externally. However, there is still no internationally uniform Token categorisation, which is why this article is based primarily on the FINMA categorisation. Industry organisations, such as the Crypto Valley Association, develop opinions and concepts which could form the basis for future regulations, such as the ICO Code of Conduct or the Conceptual Framework for Legal & Risk Assessment of Blockchain Crypto Property (BCP) produced by the law firm MME.31 [Rz 16] MME defines a «Blockchain Crypto Property» (BCP) as a digital property that can be registered on a Blockchain. It can perform programmed functions that are managed by a «Smart Contract system» («SCS»), triggered manually or by an agreed-upon third party (an «oracle»). Smart Contracts are the essential tool for achieving decentralisation, carrying out activities in accordance with predefined parameters that would traditionally be carried out by intermediaries. The SCS is a computer protocol based on a distributed ledger that is intended to define, verify and enforce the functions of a Blockchain Crypto Property. The evaluation method is based on the functionality of the Tokens (or their intended use) and not on different legal concepts. The lack of accurate classification in practice leads to some legal uncertainty.32 [Rz 17] BCP class 1 («native utility Token») can be transferred from one user’s account to another’s in a decentralised ledger, but does not grant counterparty rights. The owner of a native utility Token has no relative or absolute right other than the right that applies to the Token itself. BCP class 2 («counterparty Token») denotes a Token that represents any form of relative right against a third party. The relative right can be a (legal) right to use the services of the Token issuer. BCP class 3 («ownership Token») differs from the other categories in that ownership Tokens do not grant a relative right against the Token issuer or a third party, but rather an absolute right to intellectual property (typically copyright) subsisting either in the Smart Contract itself or in another intellectual work.33

30 Thomas Nägele/Josef Bergt, Kryptowährungen und Blockchain-Technologie im liechtensteinischen Aufsicht- srecht, Regulatorische Grauzone?, in Liechtensteinische Juristen-Zeitung, Heft 2 (LJZ 2/18), S. 65. 31 Ronald Kogens/Catrina Luchsinger Gähwiler, Ein 360-Grad-Blick auf Token, in Expert Focus 8/17, p. 589 ff.; Luka Müller/Stephen D. Meyer/Christine Gschwend/Peter Henschel, Conceptual Framework for Legal & Risk Assessment of Blockchain Crypto Property (BCP), https://www.mme.ch/fileadmin/files/documents/180501_BCP_Framework_for_Assessment_of_Crypto_Tokens_- _Block_2.pdf (accessed 15. September 2018); Lukas Müller/Milena Reutlinger/Philippe J.A. Kaiser, Entwick- lungen in der Regulierung von virtuellen Währungen in der Schweiz und der Europäischen Union, p. 80 ff. 32 Luka Müller/Stephen D. Meyer/Christine Gschwend/Peter Henschel, Conceptual Framework for Legal & Risk Assessment of Blockchain Crypto Property (BCP), https://www.mme.ch/fileadmin/files/documents/180501_BCP_Framework_for_Assessment_of_Crypto_Tokens_- _Block_2.pdf; Lars Klöhn/Nicolas Parhofer/Daniel Resas, Initial Coin Offerings (ICOs), in ZBB/JBB, 2/18, p. 92 (accessed 15. September 2018). 33 Vaïk Müller/Vincent Mignon – La qualification juridique des Tokens: aspects réglementaires, GesKR 4 p. 488; In the FINMA Guidelines for ICOs of 16 February 2018, FINMA stated that Utility Tokens may grant the following rights: the right of use or the right of access or the right to participate in a platform based on the Blockchain and its functionalities/applications.

9 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018 b. Corporate structuring for an ICO

[Rz 18] Currently, there are no requirements as to the corporate form for the implementation of a TGE/ICO; even an actual business operation is not necessary.34 [Rz 19] In the case of a TGE, the legal form of the Token issuer must first be determined. This decision should be made only after careful and comprehensive analysis, as it not only influences the taxation at the time of the TGE, but is also significant for the tax consequences in the period thereafter.35 aa. Foundation

[Rz 20] Numerous ICOs/TGEs have been carried out in Switzerland with a foundation as the issuer of a crypto currency and an AG or GmbH as the operating company. In Switzerland, ICOs were mainly structured in the following legal forms: 1. the protocol or infrastructure (with a non-commercial focus) in the form of a foundation36 or association; 2. the application (often with a commercial focus) in the form of an AG or GmbH.37 [Rz 21] If a foundation (with non-commercial purpose) is used as issuer, a second company, owned by the project organisers, is usually commissioned with the operational implementation of the foundation’s purpose. This operating company – for example in the form of an AG or GmbH – employs the programmers and technicians. For the realisation of the project, a development and/or operating agreement is concluded between the two companies, which must be based on the constitutional purpose of the foundation.38 This form of structuring has no relevant tax39 or supervisory background, but rather is intended to strengthen the confidence of the participants in the project and the currency (good governance). The proper use of the foundation’s assets is monitored by the foundation’s trustees. The advantage of a foundation is that a foundation can largely guarantee that the focus is not on the financial interests of the project initiators, but on those of the announced project, which is ultimately intended to confirm or at best increase the value of the currency issued. The disadvantage of a foundation is that the earmarked foundation assets (consisting of the funds received from the TGE and any later income) can only be used within the scope of the purpose as set out in the foundation’s constitutional document. If the objectives change or other projects are to be realised, this is not possible without a costly process

34 Michaela Hönig, Initial Coin Offering, Studie zu Kryptowährungen und der Blockchain-Technologie, p. 10. 35 Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 ff. 36 As a rule, a foundation is not tax-exempt as it is not a non-profit organization; depending on the circumstances, it may be a non-profit foundation (e.g. in the open source sector) or a commercial foundation (see Thomas Linder/ Guido Jud, Rechtliche und steuerliche Fragen bei Kryptowährungen und Krypto-Finanzierungsstrukturen (ICOs), 14. March 2018, http://www.ztv-zug.ch/images/publikationen/Prsentation_STV_Zug_und_MME_Legal_AG.pdf. With the Ethereum Foundation, the Dfinity Foundation and the Tezos Foundation, projects financed by ICOs in the form of foundations have settled in Zug with the purpose of developing new open decentralised software architec- tures. 37 Andreas Glarner, FinTech 3.0. – Initial Coin Offerings, Metropol, Zürich, 15. März 2018. 38 Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 f.; Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, AJP 2018, p. 89 ff. 39 According to Aline Darbellay/Michel José Reymond, Emission et néoce de jetons digitaux, EF 17, 880: the advantage of a non-profit foundation is that banking regulations are not applicable.

10 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 of amending the constitutional purpose. It is therefore very important to determine the purpose of the foundation with foresight in advance of the TGE.40 [Rz 22] The structuring of foundations has come under pressure in some cases, as the Swiss foundation supervisory authority has objected, for example, to excessive service contracts with the initiators, which served to skim off profits. Therefore, in the case of commercial projects, it should be critically examined whether the use of a charitable foundation is purposeful and whether a different structure should be chosen.41 bb. Corporations and associations

[Rz 23] Most ICOs in Switzerland that use a corporation as their legal form use the AG or GmbH. ICOs of associations in which the donors become members are also conceivable. A corporation as a Token issuer has the following advantages over a foundation: there is no earmarking of revenues from the Token Generating Event; and the issuing of the Tokens does not have to be separated organisationally from the operational implementation of the project. On the other hand, if the Token issuance is to be carried out in Switzerland and the project operationally abroad, an organisational separation can also make sense for a corporation. Furthermore, from the perspective of the donors, foundations have the advantage over corporations in that the use of funds must be within the constitutional purpose of the foundation and subject to the foundation’s independent supervision. It is therefore easier to ensure that the funds raised by the ICO are used only in the interest of the donors. In contrast to the AG and the GmbH, however, there are no actual shareholders in a foundation, so it must be planned in advance how the funds generated by the ICO can be transferred to the units that develop the actual activity (e.g. IT platform development). Transfer pricing and value-added tax aspects must be taken into account.42 c. Tax structuring for an ICO

[Rz 24] The decisive factor for the tax assessment of a TGE/ICO is primarily the nature and functions of the Token issued. Payment Tokens are regarded by various cantonal tax authorities as a digital means of payment or as assets – comparable to a bank balance. As a result, Payment Tokens are subject to wealth tax («Vermögenssteuer») at year-end rates and the Swiss Federal Tax Administration (EStV) publishes rates in respect of the best-known crypto currencies.43 [Rz 25] The profit tax treatment of the TGE/ICO does not differ in principle whether a corporation or a foundation is used as the Token issuer. However, the foundation generally has lower profit tax rates. The services rendered by taxable persons against payment are subject to value added tax (VAT). When a means of payment is exchanged for another means of payment, no consumable

40 Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 f.; Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, AJP 2018, p. 89 ff. 41 Matthias Langer, Liechtenstein: Elysium für Krypto und Blockchain basierte Unternehmen?, StR 2017, 846. 42 Tobias F. Rohner/Andrea B. Bolliger, Mehrwertsteuerliche Aspekte von Initial Coin Offerings: die Ausgabe von Asset Token stellt keinen Umsatz dar, In: Expert Focus, Zürich, Jg. 92(2018), Nr. 8, p. 638–643; Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, AJP 2018, p. 89ff.; Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 ff. 43 Tobias F. Rohner/Andrea B. Bolliger, Mehrwertsteuerliche Aspekte von Initial Coin Offerings: die Ausgabe von Asset Token stellt keinen Umsatz dar, In: Expert Focus, Zürich, Jg. 92(2018), Nr. 8, p. 638–643.

11 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 economic value is granted, which means that there is no service within the meaning of the VAT Act (to a certain extent as with the sale of a voucher). Transaction fees for payment via Bitcoin as well as income from the exchange of traditional currencies into Bitcoin or other Payment Tokens and vice versa are exempt from VAT. If a Token grants its holder rights that go beyond the rights of typical crypto currencies (Payment Tokens), the tax consequences are to be assessed individually according to the specific features of the Token or the tax classification of the law superficially applicable to the Token.44 [Rz 26] For a (value-added) tax classification of an ICO or the ensuing transactions, clarification of the rights and obligations associated with the issued Tokens is required. The rights and obligations associated with a Token result from the so-called «white paper». It is a type of simplified issuance prospectus in which are defined what the funds generated with the ICO are to be used for and how the Tokens are structured.45 [Rz 27] The tax treatment of the company’s own portfolio of crypto currencies plays a central role. This is particularly true because the company usually receives crypto currencies such as Bitcoin or Ether in return for the sale of the Tokens and also often holds a fraction of the Tokens created itself. In a TGE, the company’s own Tokens are usually created by a Smart Contract. For the programming of these Smart Contracts, expenses are incurred which basically represent the manufacturing costs of the Tokens. At these manufacturing costs, the Tokens issued are recorded as an asset for the first time for accounting purposes.46

B. In Liechtenstein a. Regulatory classiﬁcation of the ICO

[Rz 28] The new Liechtenstein Blockchain Act (VTG)47 introduces «Tokens» as a new legal element to embody rights (including rights to tangible assets) of all kinds. The issuance of Tokens (e.g. as part of an ICO) does not create a new right, but subjects an existing right to the transfer order and the legitimation order of the Blockchain. The VTG sees itself as a framework law for the creation of an appropriate legal basis for Token-based applications and, in the context of the «Token economy», has a broad scope of application, not only the regulation of ICOs. In Liechtenstein, crypto currencies do not have the status of legal tender.48 [Rz 29] From a regulatory perspective, Tokens are also divided into three groups depending on their function: Currency coins (Payment Tokens), Utility Tokens, and Security or Equity Tokens,

44 See §§ 38 f. Steuergesetz des Kantons Zug, BGS 632.1; Steueramt des Kantons Zürich, https://www.steueramt.zh.ch/internet/finanzdirektion/ksta/de/aktuell/mitteilungen/amtsmitteilung en_2018/kryptowaehrungen.html; Lukas Müller/Milena Reutlinger/Philippe J.A. Kaiser, Entwicklungen in der Regulierung von virtuellen Währungen in der Schweiz und der Europäischen Union, p. 80 ff.; Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 f. 45 Tobias F. Rohner/Andrea B. Bolliger, Mehrwertsteuerliche Aspekte von Initial Coin Offerings: die Ausgabe von Asset Token stellt keinen Umsatz dar, In: Expert Focus, Zürich, Jg. 92(2018), Nr. 8, p. 638–643. 46 Dominic Nazareno, Initial Coin Offering und die damit verbundenen Steuerfolgen, Expert Focus 3/18, p. 198 f. 47 Gesetz über auf Vertrauenswürdigen Technologien (VT) beruhende Transaktionssysteme (Blockchain-Gesetz; VT-Gesetz; VTG). 48 Gesetz vom 26. Mai 1924 betreffend die Einführung der Frankenwährung (LGBl. 1924 Nr. 8) sowie den Währungsvertrag zwischen dem Fürstentum Liechtenstein und der Schweizer Eidgenossenschaft vom 19. Juni 1980 (LGBl. 1981 Nr. 52).

12 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 as well as hybrid Tokens. Utility Tokens can be used for discounted purchases or vouchers for services or as a kind of access key for various software applications. Utility Tokens are generally regarded as commodities by the Financial Market Authority (FMA). Therefore, trading in crypto currencies with each other would in principle be equivalent to a normal exchange transaction pursuant to §§ 1045 et seq. of the ABGB equal.49 [Rz 30] As a matter of principle, the FMA does not classify the Token issue as a deposit («Ein- lagen») within the meaning of the Banking Act because it is usually not associated with repayment claims. However, if an ICO does not achieve its capitalisation target (the so-called «soft cap») and the transaction is reversed, a «banking transaction» could exist. Retrospectively, this could potentially lead to a finding of the acceptance of deposits or other repayable funds, except for the exception mentioned in Art. 3 para. 3 lit. a Banking Act (BankG) or those in Art. 1a para. 2 Banking Ordinance (BankV). Deposit transactions are in principle unconditionally repayable monies, i.e. monies on which a civil law claim to repayment exists and which are not dependent on the occurrence of a future uncertain event. Only «legal means of payment» are subsumed under «money», and since crypto currencies are not legal means of payment in Liecht- enstein, the term «deposit» is not fulfilled in the case of an ICO that only accepts crypto currencies.50 [Rz 31] Crypto currencies have a reputation of being misused for money laundering, and the Fifth Money Laundering Directive (AMLD5) anchors the term «virtual currency» in EU law. But AMLD5 does not address the various Token types (Payment, Investment and Utility Tokens) – in contrast to FINMA. This means that wallet providers and virtual currency exchange platforms have to register with the competent authority. Only those virtual currencies that assume the function of legal tender fall within the scope of AMLD5. Therefore, virtual currencies that can only be redeemed to a very limited extent or are hardly suitable for the purchase of goods or services – such as bonus programmes, for example – are out of scope, because the digital monetary units obtained in this way can only be exchanged for goods or services at the issuing office. Nevertheless, it is certainly advisable to carry out anti-money laundering/«know your customer» (AML/KYC) measures for each ICO, even if no due diligence obligations were prescribed by law, in order to maintain a banking relationship. With the amendment of the Due Diligence Act, which entered into force on 01. November 2017, the term «virtual currency» has found its way into Liechtenstein law for the first time.51 [Rz 32] According to the new Blockchain Act (VTG)52, a Token issuance comprises the first public offering of Tokens to a large group of people who are not personally known. This Token issuance will be subject to registration and the Token issuer will be subject to the statutory minimum standards for «trusted technology» (VT) service providers. In addition, Token issuers are obliged to publish basic information about the Tokens and to correctly inform potential buyers about

49 Thomas Nägele/Josef Bergt, Kryptowährungen und Blockchain-Technologie im liechtensteinischen Aufsicht- srecht, Regulatorische Grauzone?, in Liechtensteinische Juristen-Zeitung, Heft 2 (LJZ 2/18), p. 65; Patrick Bont, Kryptowährungen – und was machen die Regulatoren?, FMA Merkblatt, 26. Oktober 2017, p. 7. 50 Thomas Nägele/Josef Bergt, Kryptowährungen und Blockchain-Technologie im liechtensteinischen Aufsicht- srecht, Regulatorische Grauzone?, in Liechtensteinische Juristen-Zeitung, Heft 2 (LJZ 2/18), p. 65. 51 Matthias Langer/Thomas Nägele, Blockchain- und Tokenbasierte Unternehmen in Liechtenstein – Steuerliche und rechtliche Fragen und Antworten, IWB, 6/2018, p. 240. 52 Gesetz über auf vertraunswürdigen Technologien (VT) beruhende Transaktionssysteme (Blockchain-Gesetz; VT-Gesetz; VTG).

13 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 the Tokens in accordance with Art. 28 ff VTG. Although the basic information should be made known to FMA in good time before the Token issuance, no formal approval by FMA is required. In addition, the information must be published – e.g. on the issuer’s website.53 [Rz 33] In the case of an ICO, it must be carefully examined whether the Prospectus Directive54 must be complied with. If a virtual currency also contains the characteristics of a financial instrument, the Prospectus Directive will apply when that financial instrument is placed on the regulated market. FMA classifies Security Tokens or Equity Tokens as «financial instruments» and therefore trading in them is deemed to be trade in financial instruments, as they may represent company shares or other shareholder rights. When linked to such a Security/Equity Token, these company shares are digitised, but they do not lose their character as a financial instrument.55 The Prospectus Directive applies if securities are offered to the public56 for the first time in an EEA Member State (the primary market) or if they are traded on the regulated secondary market.57 The Liechtenstein Securities Prospectus Act (WPPG) transposes into national law the Prospectus Directive 2003/71/EU, which requires a compliant prospectus to be published when securities are offered to the public or admitted to trading. For reasons of investor protection, the term «securities»58 is deliberately to be understood comprehensively and broadly. If compliance with the securities regulations – in particular the Prospectus Directive – is deliberately avoided, a considerable liability risk arises if it later turns out that the situation was incorrectly assessed.59 b. Corporate structuring for an ICO

[Rz 34] In Liechtenstein, all paths are basically short, which favors efficiency and speed, e.g. when setting up a company or an ICO. In this context, particular attention is paid to the possibilities offered by Liechtenstein legal forms (e.g. foundation, establishment [«Anstalt»], Liechtenstein Venture Cooperative). In Liechtenstein there are flexible and sometimes unique forms of company, such as the Liechtenstein Venture Cooperative (LVC)60 or the establishment («Anstalt»). In

53 Gesetz über auf Vertrauenswürdigen Technologien (VT) beruhende Transaktionssysteme (Blockchain-Gesetz; VT-Gesetz; VTG). 54 See Richtlinie 2003/71/EG des Europäischen Parlaments und des Rates vom 4. November 2003 betreffend den Prospekt, der beim öffentlichen Angebot von Wertpapieren oder bei deren Zulassung zum Handel zu veröf- fentlichen ist, und zur Anderung der Richtlinie 2001/34/EG (ABl. L 345 vom 31. Dezember 2003, p. 64–89) sowie die Richtlinie 2010/73/EU des Europäischen Parlaments und des Rates vom 24. November 2010 zur Anderung der Richtlinie 2003/71/EG betreffend den Prospekt, der beim öffentlichen Angebot von Wertpapieren oder bei deren Zulassung zum Handel zu veröffentlichen ist. 55 Thomas Nägele/Josef Bergt, Kryptowährungen und Blockchain-Technologie im liechtensteinischen Aufsichts- recht, Regulatorische Grauzone?, in Liechtensteinische Juristen-Zeitung, Heft 2 (LJZ 2/18), p. 65 ff. 56 A public offer is a communication to the public in any form and by any means which contains sufficient information about the terms of the offer and the securities to be offered to enable an investor to make a decision to purchase or subscribe for those securities. 57 Niamh Moloney, EU Securities and Financial Marktes Regulation, 3. Aufl., Oxford 2014, p. 49 ff. 58 According to Art. 3 para. 1 letter a WPPG, the definition includes transferable securities that can be traded on the capital market. 59 Matthias Langer/Thomas Nägele, Blockchain- und Tokenbasierte Unternehmen in Liechtenstein – Steuer- liche und rechtliche Fragen und Antworten, IWB, 6/2018, p. 240; Vgl. Philipp Hacker/Chris Thomale, Crypto- Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law (November 22, 2017), see https://ssrn.com/abstract=3075820, p. 12 ff. (accessed 30. October 2018). 60 Liechtenstein is currently striving to attract domestic and foreign investors and innovators and to position itself accordingly in this field of innovation. This is reflected, among other things, in initiatives at the legislative level (such as the LVC – see https://impuls-liechtenstein.li/liechtenstein-venture-cooperative.

14 Marc-André Beat Schauwecker, Initial Coin Offering, in : Jusletter 5 novembre 2018 order to promote the start-up scene in Liechtenstein, the government has reduced the initial capital of the GmbH to CHF 10’000 and introduced the LVC. With the LVC, innovators can introduce their idea into a professional structure at the beginning of the project and then further develop it in cooperation with partners. If successful, the LVC can then be transformed into a different, more familiar legal form such as an AG or GmbH. For the legal form of the establishment, which is little known internationally, only CHF 30’000 is required for incorporation. The domicile or registered office is irrelevant and the names of the founders are not published. There are only beneficiaries who derive economic benefit from the establishment, but there are no members or partners. Only the assets of the establishment are liable for the debts of the establishment and externally the board of directors appointed by the founder represents the establishment.61 [Rz 35] Which legal form is the optimal legal form for the implementation of an ICO? The main reason for choosing the legal form of a foundation is probably tax optimisation, but the classification as a charitable foundation cannot be accepted by the tax administration if the founders have a personal interest in the success of the ICO. According to Darbellay/Reymond, the decision to choose a charitable foundation can also be influenced by the fact that banking regulations do not apply to this type of institution.62 [Rz 36] Moreover, there are no recognition problems with «new foundations» established since the reform of Liechtenstein foundation law. In contrast, recognition outside the EU is problematic for the Liechtenstein Establishment, since it is unique in Liechtenstein. In its decision IV ZB 9/14 of 3 December 2014 on the recognition of Liechtenstein companies, the German Federal Court of Justice had stated that abuse of rights could only be assumed in extreme exceptional cases.63 c. Tax structuring for an ICO

[Rz 37] The fact that Liechtenstein has a favourable tax system with moderate tax rates for issuers of Tokens (typically a foundation structure or a special purpose entity) speaks for Liechtenstein as a location. The taxation of ICO entrepreneurs and investors domiciled in Liechtenstein depends on the structure and Token categorization. For a Utility Token, for example, the ICO generally leads to a taxable income at the level of the Special Purpose Vehicle (SPV), but the taxable income can be reduced taking into account the expected costs for the development of the project and the Tokens as well as the subsequent maintenance of the ecosystem. If an Equity Token is issued in the case of an ICO, the «emission levies» must be observed in particular.64 [Rz 38] Many ICOs are often structured as a «contribution» in the sense of a donation/dedication of assets to a charitable foundation or SPV. Contributions to a charitable foundation are very attractive from a tax point of view, since the Principality of Liechtenstein does not have a gift tax.

61 Marc-André Schauwecker, Steuerdelikte als Vortaten zur Geldwäscherei und deren Konsequenzen für Finanzin- termediäre, Diss. Bern 2016, p. 15 ﬀ.; Johannes Gasser, Liechtensteinisches Stiftungsrecht, Praxiskommentar, Bern und Wien 2013, p. 58 f.; Christoph k. Graber, Geldwäscherei – Ein Kommentar zu Art. 305bis und 305ter StGB, Diss. Bern 1990, p. 64 f. 62 Aline Darbellay/Michel Jose Reymond, Emission et negoce de jetons digitaux, EF 17; Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, Advantages and Limitation in the Choice of the Adequate Legal Form, AJP 1/2018, p. 89 ﬀ. 63 Gasser Partner Rechtsanwälte, Anerkennung liechtensteinischer Gesellschaften in Deutschland, News 9. Dezember 2015, https://gasserpartner.com/de/anerkennung-liechtensteinischer-gesellschaften-deutschland (accessed 22. November 2018). 64 Matthias Langer, Liechtenstein: Elysium für Krypto und Blockchain basierte Unternehmen?, StR 2017, 846.

15 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018

In addition, Art. 48 para. 4 lit. b SteG65 provides that increases in value through inheritance or gift are not considered taxable income.66 [Rz 39] According to the Customs Treaty (Zollvertrag) with Switzerland of 1923, the Stamp Law is applicable in Liechtenstein. In addition, Liechtenstein applies the incorporation tax pursuant to Art. 66 SteG. This is payable in Liechtenstein if Swiss stamp legislation is not applicable. In the case of an establishment («Anstalt»), for example, Swiss stamp legislation does not apply; therefore, the incorporation tax in Liechtenstein, which amounts to 1% of the capital (with reductions for capital exceeding CHF 5 million or 10 million to 0.5% or 0.3%, respectively), is generally payable. However, there is a general exemption limit of CHF 1 million. In contrast to an establishment, a GmbH or a AG is subject to Swiss stamp legislation, which is why Art. 8 StG is relevant. There is a stamp duty of 1%, but with an exemption limit of CHF 1 million. There is therefore a diﬀerence between the GmbH/AG and the establishment in that the establishment can beneﬁt from the reductions from a capital of 5 million or more.67 [Rz 40] However, tax advisors must bear in mind that, for example, if a donation is made by a natural person resident in Germany, the German gift tax also applies. This means that a donation that goes beyond the statutory exemption leads to a gift tax of 30% to 50%. Both the donor and the recipient are jointly and severally responsible for the payment of the gift tax. In addition, the Liechtenstein entity’s board of trustees commits tax evasion in Germany, for example, if it does not report such a donation in Germany in good time.68

III. Conclusion

[Rz 41] In Switzerland, the dual model of a (non-profit) foundation and a private limited company as operating company is usually used to structure an ICO. However, it is questionable whether this form of structuring represents the ideal legal structure. In contrast to the Liechtenstein foundation, the Swiss foundation is less advantageous with regard to freedom of purpose, freedom of assets, confidentiality, founder’s rights and taxation.69 The main reason for choosing the legal form of a Swiss foundation is, among other things, tax optimisation. But the foundation’s assets are tied to this purpose for 10 years and not every foundation can be classified as a charitable foundation. Only a foundation that pursues altruistic or public purposes can be described as «charitable». The founders of an ICO should not pursue their own interests – not even indirect interests.70 Since most ICOs do not pursue exclusively altruistic purposes, the Swiss foundation

65 Gesetz vom 23. September 2010 über die Landes- und Gemeindesteuern (Steuergesetz; SteG). 66 PWC, Initial coin offerings (ICOs) in Liechtenstein, https://news.pwc.ch/wp-content/uploads/2018/03/Initial- coin-offerings-in-Liechtenstein_EN.pdf; Matthias Langer, Liechtenstein: Elysium für Krypto und Blockchain basierte Unternehmen?, StR 2017, 846. 67 Matthias Langer, Liechtenstein: Elysium für Krypto und Blockchain basierte Unternehmen?, StR 2017, 846. 68 Matthias Langer, Liechtenstein: Elysium für Krypto und Blockchain basierte Unternehmen?, StR 2017, 846; Aline Darbellay/Michel Jose Reymond, Emission et negoce de jetons digitaux, EF 17, 880; Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, Advantages and Limitation in the Choice of the Adequate Legal Form, AJP 1/2018, p. 89 ff.; Markus Kaulartz, ICO – Initial Coin Offering, CMS Blog, 13. July 2017, https://www.cmshs-bloggt.de/banking-finance/ico-initial-coin-offering (accessed 22. September 2018). 69 PWC, Die gemeinnützige Stiftung in Liechtenstein, http://www.swissfoundations.ch/sites/default/files/Die_ gemeinnuetzige_Stiftung_in_Liechtenstein_DE_web.pdf (accessed 10. October 2018). 70 Arnab Naskar/Bruno Pasquier, The Tale of Swiss ICO Foundations, Advantages and Limitation in the Choice of the Adequate Legal Form, AJP 1/2018, p. 89 ff.

16 Marc-André Beat Schauwecker, Initial Coin Oﬀering, in : Jusletter 5 novembre 2018 is in my opinion not the most suitable legal structure for an ICO; an AG or a GmbH would be more suitable corporate forms for an ICO in Switzerland. On the other hand, the dual structure of an ICO by means of a foundation or establishment («Anstalt») and an operating company (e.g. AG or GmbH) in Liechtenstein is attractive.

Marc-André Beat Schauwecker, Dr.iur., MBA (University of Rochester, USA), EMBA (University of Bern), is a lawyer at LGT Bank and a lecturer at the University of Liechtenstein.

The author thanks Christopher Wray, MA (University of Oxford), Barrister, for reviewing the article and for valuable advice.