Prof. Thierry Obrist and Dr. Roland Pfister publish a short text on tax treatment of cryptocurrencies.



The development and use of blockchain technology has been so increasingly dynamic that it is difficult to predict future trends from a tax law perspective. Therefore, this article provides an overview of selected tax issues arising in connection with cryptocurrencies and the underlying blockchain technology from a Swiss tax perspective and addresses selected topics that have either been subject to review and discussion by Swiss tax authorities or that have generated discussion amongst tax experts.

For the purposes of this analysis, the term “cryptocurrency” will be understood in a broad sense as referring to digital means of payment or assets. Although currently there are over 1.000 different cryptocurrencies, the most popular are Bitcoin, Ethereum, Ripple, Litecoin and Dash.  For the sake of clarity, throughout the text the term “token” will be used to refer, in general terms, to all cryptocurrencies in general.  


The creation and issuance of cryptocurrencies

Tokens can be generated in several ways, but commonly, they are created through the mining of blocks or through an initial sale: Initial Coin Offering (“ICO”) or Token Generating Events (“TGE”). Through ICOs and TGEs, capital is raised using blockchain technology whereby supporters are sold tokens in exchange for money (in the form of either legal tender or a different token).  


Classification of cryptocurrencies

Tokens are generally divided into three groups: intrinsic tokens, giving no consideration rights; counter-party tokens, which give certain compensation rights; and tokens with co-ownership rights, which grant ownership rights over an asset or a project that is shared with other investors.

Tax Consequences of holding tokens

Income tax. According to the subject-origin approach (objective notion of income), payments made by a (digital) entity to its private token holders/investors or by any kind of projects based on the blockchain and related to the holding of tokens (and therefore not received from third parties), whether in the form of virtual currency or not, might -as a rule- qualify as income from movable property, taxable in the hand of its recipient at the combined federal, cantonal and communal effective rate of 12-24% (corporations) or 20-40% (individuals).

Non-realized capital gains. According to the realisation principle applicable under Swiss tax law, an increase of value can only trigger income tax upon realisation. In this regard a realization might take place as an effective realization (e.g. sale of an asset) or a book realization (e.g. reevaluation of an asset book value). According to the position expressed by ExpertSwiss, a leading and authoritative association of Swiss accountants, companies and individuals holding Bitcoins as commercial assets have the right to reevaluate bitcoins over their acquisition price if they wish so, but shall not be forced to do so, and such reevaluation can be neutralized by a value adjustment (provision) according to art. 960 (b) Swiss Code of Obligations. It is not yet clear of this applies to any form of tokens.

Wealth taxes. Swiss cantons levy wealth tax on the net fair market value of wealth owned by Swiss resident individuals whereby the average applicable rate ranges between 0.1-1% (2018). Both the cantons of Luzern and Zug have issued bulletins providing guidelines on how holdings of cryptocurrencies (Bitcoin, Ethereum, Tokens, etc.) should be valued for wealth tax purposes. In principle, cantonal tax authorities consider that cryptocurrency should be valued at the end-of-year average value (or fair market value). However, in the event that it is not possible to obtain an official value of the cryptocurrency involved at the year-end, then the taxpayer is allowed to declare the value of the cryptocurrency at the time of acquisition.

According to several cantonal tax authorities (i.e.: Luzern and Zug), tokens are to be reported as “other assets” and not as participations and taxpayers can provide the tax administration with a printout of the virtual wallet to establish the existence and ownership over the tokens. Since 2015, the Swiss Federal tax administration has issued an official value of bitcoin to be used for wealth tax purposes.


Tax consequences from the sale and purchase of cryptocurrencies

Direct Taxes

Income tax. Legal persons and individuals holding tokens as business assets are subject to income tax on capital gains realised upon the sale of tokens. Coherently, losses incurred on tokens are tax deductible. On the other hand, capital gains deriving from the sale of tokens held by an individual as private wealthare exempt from income tax. This applies unless the gains result from a professional trading activity in which case they are taxed as income from an independent activity. The Federal Tax Administration has issued guidelines defining when securities trading becomes an activity, whereby the length of the holding period, the volume of transactions, and specific (financial) expertise of the taxpayers are – among other – taken into consideration (“FTA”) Circular No. 36).

The tax administration of the canton of Lucerne issued guidelines establishing that the FTA’s Circular No. 36 should be applied by “analogy” to cryptocurrencies and the criteria of such Circular are likely to be applied by other cantonal tax administrations in determining whether capital gains realised by individual are taxable or exempted. It is however the authors’ opinion that the particularities of the token industry create a need for an increased actively management of such privately held investments, leading token holders to have an important transaction volume and to collect specific technical and financial knowledge that should not be valuated too strongly in the qualification as a professional activity.


Indirect taxes

VAT. To date, the Swiss tax authorities have not provided any publicly available guidelines on the application of VAT to transactions involving tokens. However, taking into consideration the provisions of articles 21(1)(19)(d) VAT Act, together with the conclusions of the Hedqvist case (which understood that virtual coins are a “pure means of payment” which should be treated as legal tender), it is likely that the same criteria should be applied for Swiss VAT, leaving these transactions out of VAT’s scope. This conclusion is also supported by Swiss authors, who state they received written confirmation on several occasions from the FTA in the form of an advanced tax ruling stipulating that the transfer of Bitcoins is not a taxable supply for the purposes of Swiss VAT. It is not yet clear whether this would apply to any form of tokens.

Transfer stamp tax. Swiss transfer stamp tax is levied on the transfer, against consideration, of certain securities if one of the two parties, or an intermediary, is considered a professional securities trader under article 13(1) of the Stamp Tax Act. If the token is considered a security for transfer stamp tax purposes, and a professional securities trader is involved, either as a party or an intermediary, transfer stamp tax might be levied at 0.15% (local securities) or 0.3% (foreign securities) rate. No publicly available guidelines have been issued by the Swiss tax authorities on this topic.

Tax deferral

When a business asset is sold, Swiss tax law provides for the possibility to defer taxation of the realised gain in the event of reinvestment. It is unlikely that gains from tokens would benefit from the tax deferral benefit, since the tokens would probably not be considered necessary for business operations, as defined in the Federal income tax act. In this regard, no tax deferral is possible to neutralise capital gains realised upon the sale of tokens held by a legal person or an individual holding the token as commercial asset.


Qualified participation relief

Swiss tax law provides for two types of participation income relief: a partial taxation for individuals and a participation relief mechanism for legal persons. The partial taxation mechanism applies when an individual holds more than 10% of the share capital of a (Swiss or foreign) company; while the participation relief mechanism available for legal persons applies when an entity (i) holds more than 10% of the share capital or, (ii) is entitled to more than 10% of the distribution from another legal person, or iii) the participation has a value of more than CHF 1 million. Such participation relieves should apply when a token is qualified as a security (i.e.: tokens with co-ownership rights, as per Section 3 above) and when the project is a taxable entity.

In the vast majority of cases the application of the participation relief mechanism will be denied due to the fact that the project financed by tokens (in the framework of an ICO), if not structured through a corporate entity, will consequently have no legal personality, and it will not be necessary to avoid economic multiple taxation. 

Payment with cryptocurrency

Payments received in tokens should be included as part of the taxpayer’s income. The tokens should be valued in Swiss francs, based on the fair market value when the payment is received. If the token is held as private asset, its subsequent increase in value is tax exempted as described above.

More information here.