Issue link: https://maltatoday.uberflip.com/i/1053035
ON November 1, 2018, the Malta Commissioner for Rev- enue issued guidelines on the income tax, stamp duty and VAT treatment of transactions or arrangements involving Dis- tributed Ledger Technology ("DLT") Assets. Three sets of guidelines were issued covering income tax, stamp duty and VAT separately. A categorisation of DLT assets was made com- mon to all three guidelines whereby DLT assets were categorised into coins and to- kens, with the latter further sub-divided into financial to- kens and utility tokens. All three tax guideline docu- ments clarify that the income tax, stamp duty and VAT treatment of any type of DLT asset will not necessarily be determined by its categorisa- tion, but will depend on the purpose for and the context in which it is used. Initial Coin Offerings (ICOs) The Guidelines in relation to income tax provide that an in- itial offering or token genera- tion event of financial tokens typically will involve the rais- ing of capital. The proceeds of such issue should hence not be treated as income of the issuer and the issue of new tokens should not be treated as a transfer for the purposes of taxation of capital gains. When on the other hand the offering is of utility tokens that entail an obligation of the issuer to perform a service or to supply goods or benefits to the token holder, the gains or profits realised from the pro- vision of the services or the supply of the goods should in terms of the guidelines repre- sent income. From a VAT perspective, the VAT guidelines provide that based on the assumption that at the point of issuing an ICO, no specific good or ser- vice is identified, nor a cor- responding price for a sup- ply could be fixed, nor would it be possible to determine whether the project to the un- dertaken by the issuer of the ICO would be realised – then such ICO may not necessarily constitute a chargeable event for VAT purpose and hence should be treated as outside the scope of VAT. Where however the tokens issued at ICO stage would give rights to identified goods or services for a specified con- sideration, a chargeable event would arise and the rules ap- plicable to utility/financial to- kens, should be followed. Financial and Utility Tokens For the purpose of the guidelines issued, tokens were divided into financial tokens and utility tokens as well as tokens having characteristics of both, being referred to as hybrid tokens. For income tax purposes returns derived from finan- cial tokens, should be treated as income. In relation to the transfer of tokens, the tax treatment should depend on whether the transfer is a trad- ing transaction or is a transfer of a capital asset. Whilst trad- ing profits are taxable, capital gains are only taxable insofar as the token meets the defini- tion of 'securities' in the In- come Tax Act. From a VAT point of view, the VAT guideline document provides that in the case of financial tokens issued sim- ply to raise capital, the is- sue should not give rise to any VAT implications in the hands of the issuer for the reason that the raising of fi- nance in itself does not con- stitute a supply of goods or services for consideration. In the case of the issue of utility tokens whereby a token is- sued carries an obligation to be accepted as consideration or part thereof for a supply of a good or a service, such to- ken would have the character- istics of a voucher and should be treated in the same manner as vouchers for VAT purpos- es. In this regard a distinction must be made between single- purpose or multi-purpose to- kens/ vouchers in this case. Transactions in Coins For income tax purposes the distinction between trad- ing and capital transactions should be made in determin- ing whether a transaction involving coins is taxable or otherwise. The guidelines provide that profits realised from the business of exchang- ing coins should be treated in the same manner as profits derived from the business of exchanging fiat currency and hence subject to income tax whilst coins should fall out- side the scope of taxation of capital gains. For VAT purposes the ex- change of cryptocurrencies for other cryptocurrencies or for fiat money, where such exchange constitutes a sup- ply of services for considera- tion, should be exempt from VAT under the exemptions provided for transactions in currency and related services. Exchange Platforms Providers of exchange plat- forms realising profits from the provision of the platform, should be treated like normal companies and hence charge- able to tax under the normal rules and principles applica- ble to Malta corporate enti- ties. For VAT purposes, the pro- vision of a trading/exchange facility in consideration for the payment of a user/transac- tion fee or commission should constitute a supply of services for consideration. Like any other transaction a supply of services falling within the scope of Malta VAT would be taxable, unless an exemp- tion applies. The VAT treat- ment (as taxable or exempt) of trading/exchange platform services would depend on the nature of the service supplied, which would have to be deter- mined on a case-by-case basis and certain factors need to be looked into to determine the VAT implications. Stamp duty The stamp duty treatment on transactions involving DLT assets shall be subject to duty if the DLT assets have the characteristics of market- able securities. Conclusion Whilst the guidelines issued provide for clarity in the ap- plication of existing rules and regulations, each case must be treated separately to es- tablish the income tax, VAT and stamp duty treatment of a transaction. The guidelines also clarify that when a payment is made or received in cryptocurren- cy, for income tax purposes it should not be treated differ- ently than a payment in any other currency. Accordingly, for businesses which accept payment for goods or services in cryptocurrency, there is no change to when revenue is recognised or the manner in which taxable profits are calculated. The same applies to payments of remuneration, such as salaries or wages, and therefore such should be re- garded as taxable in terms of the general principles. When a payment is made by means of the transfer of a financial or a utility token, it will be treat- ed like any other payment in kind. This is a summary and the content of this article is in- tended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. maltatoday | SUNDAY • 18 NOVEMBER 2018 BUSINESS & INNOVATION B2 Antoinette Scerri is Senior Manager, Tax Advisory Services, Nexia BT Transactions involving DLT assets Antoinette Scerri