Digital currencies and tokens (2)

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This article completes what we wrote earlier.

Utility tokens
If tokens give their holder the right to receive specified goods or services from a particular company, then offering those tokens to the public is substantially similar to requesting a prepayment for goods or services. The public offering and future sales of tokens should therefore have the same VAT treatment as the underlying goods or services the right to which is purchased. In other words, if a supply of goods or services attracts the standard rate under the VAT Act, the public offering of tokens should also attract the standard rate. If a service (product) is exempt from VAT, the public offering and future sales of tokens should also be exempt. The same applies to services supplied by intermediaries (agents/brokers).
Digital currency mining
Taxpayers are still not clear about the VAT treatment of digital currency mining (creation). Can we assume, as with a share issue, that in this case it is not possible to identify a supply of goods or services for which a consideration is received? A transaction in which money is paid without receiving performance in return is outside the scope of VAT, so there would be no right to deduct input VAT on the purchase of goods (mainly electricity). Yet we expect a clear opinion from the State Revenue Service on this issue.
If digital currency miners receive any commission for the resulting currency, that commission could be considered a consideration for an exempt financial service.
Platform operations
Taxpayers also have questions about the activities of platforms ensuring that virtual currencies and tokens are issued and marketed. The VAT treatment may vary in each particular case according to platform functionality. If a platform provides only technical support, its services are likely to be taxable as electronically supplied services. If the platform operator’s involvement is active, its operations could be considered intermediation in supplying exempt financial services and thus an exempt service.
Digital currency is stored in e-wallets. The State Revenue Service has yet to publish an opinion on the VAT treatment of services that e-wallet providers supply for a consideration. While those services could be taxable, they should be evaluated according to their nature and substance because some of them could be considered exempt financial services.
Matters become even more complicated if a token is essentially different from means of payment, securities and utility tokens because it guarantees a variety of rights. Should that token have the same VAT treatment as a multiple-purpose voucher? This question also remains unanswered.
Ilze Rauza
Director, Tax Services
Tel: +371 67094400
Kristine Skrastina
Consultant, Tax Services
Tel: +371 67094400
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