CVA Podcast: Thomas Linder, MME

Transcript

[Music] hello hello it is your host raz ahmed ready to kick off this bite-sized episode of the crypto valley association podcast let's discover together the growing trends of this fast-moving space and try to shed some light on the mysteries it contains we are joined by thomas linder tax partner at mme a founding member of the crypto valley association and the one for all solution to your legal compliance and of course tax needs so let's dive straight into the hidden world of taxes thomas it's great to have you here how are you today

not too bad thank you very much and it's also great for me to give some insights into the legal and tax matters of crypto industry awesome well good to hear and so why don't you kick this off by telling us what first got you personally involved within the blockchain technology space we have been in the that's a privileged situation that already in 2013 i guess the team of young people started a project called ethereum and they visited switzerland and it was so italic portraying joe lubin charles hodgkinson gannonwood i think mihai alicia was there and then they

checked different locations where they could set up their operations and they also visit the zoo in switzerland and i think there's per coincident they visited mme and luca miller and they tried to explain what what they want to do and what their vision is and actually we didn't understand anything but it was very kind of exciting that they're building a technology with decentralized networks smart contracts possibilities etc and that's how it started so we tried then to find the right legal structure for such a let's say non-profit decentralized network governance and where we're also a crowdfunding

could be performed and it all started from there and me myself then as a tax advisor i mean as soon as now you see that something is getting valuable and is generating income or capital gains or there is some wealth certainly from a tax point of view this gets very interesting and those are tax authorities get interested so this whole crypto space as soon as it created some not small capital gains for some people certainly the interest of tax advisors increased substantially as well okay i'm sure a lot of our a lot of our listeners are a bit envious to hear that

you heard about ethereum in 2013 it definitely has gained a lot of value since then and it's grown it's grown a lot but wow that's a great story and so you spoke about mme so what role does mme have within this growing industry i mean just from a legal and tax point of view it decentralized ecosystems and crypto that there are a lot of very interesting questions around that for me it's about ownership and control of digital data so so far actually you could also the civil law kind of applies rules that always have physical control in the center of it so ownership and property

means physical control and for a long time also digital data was linked to physical control so you stored it on your floppy disk on your hard disk and then you have been the owner of it but now you have these clouds and data is everywhere and it can be copied and you kind of have lost the control over it and now blockchain brings back kind of this digital control attribute to it with the cryptography private key public key etc and by using these key pairs you're actually again in control of the data that is stored on the blockchain and actually copied million times but only one person

is actually able to initiate peer-to-peer transaction and that's kind of this very new thing that data whatever it is got transactionable peer-to-peer without intermediaries and so now just i said we then started with ethereum i think one next very important project was xapo so one of the biggest or the biggest wallet provider for bitcoin and custody provider and there was a then the interesting question is example a bank do they qualify as a bank or financial intermediary if they can manage digital assets by custody of actually the private key etc

so that was an interesting discussion with finma and the conclusion at the end was if it's done correctly you're not the bank because the control over the assets is still with the customers so that was an important step also for the education of the authorities and then from there it went into the ico kind of bubble where a lot of regulatory questions come up and finma should then the ico guidelines based on these procedures and next steps have been been one was falcon private bank so that offered crypto accounts to their customers so that was the kind of the next step of cryptocustody and by now we have the first banks with

signum and seba that are kind of having a banking license just based on crypto custody kind of them a little bit the timeline of important regulator at least from a regular point of view very important definitely yeah i mean it's very funny that you mentioned right in terms of the technological evolution we've seen that well we started to lose control a little bit of our data and now technology is going to help us bring that control back so it's quite ironic and funny to see it in that way and and so in order to successfully set up and operate blockchain services in switzerland specifically there are many regulatory burdens and hurdles that must be

overcome so can you tell us a little bit more about this yeah sure there are some very basic hurdles but just in civil law about crypto maybe independent of a project so usually we have this digital information unit that is now transferable from one peer to the other question is always is what is it actually is there any right attached to it that is transferred with this information and it's actually not that easy to link a relative right so like a claim to pay a certain amount or to get the reward or to be a member or whatever then the claim is just from a civil law perspective to link it with the digital information

because our civil law is still focused on physical transfer of something so i write the contract and you sign and that's it and so securities and claims are not that easy digitally transferable in switzerland so that's one just civil or hurdle but we now try to solve this with this dlt law that should come into place next year then the digital transfer of digital claims and securities is also valid from a legal point of view now just from a very much regulatory point of view we have actually three types of legislation that

could apply to crypto based transactions one is anti-money laundering so as soon as an intermediary a financial intermediary handles third-party funds on behalf of customers whether this is payment systems or any other transaction then anti-money laundering regulation could kick in and financial intermediaries they need to be a member with a self-regulating organization vqf in zug is the most famous one and so they kind of need to be licensed in a way or at least a member in order to be audited etc if they want to handle third party funds then the second area of regulations is banking so as soon as you're not only

handling third party funds but you're actually accepting deposits of funds and you hold accounts on behalf of third parties this could then qualify as a banking activity and that's only allowable under a license very strict license certainly and the third area is collective investment schemes so like funds where you collect as well third-party funds and you have them under management and you generate certain returns and you pay them out that might qualify as a collective investment scheme and all anti-money laundering with let's say the easiest to handle but certainly if you want to avoid

to get into the banking or the collective investment scheme regulation if possible so and there's been a lot of discussion about management of private keys and who is really in control of the assets is it still the customer or is it the third party and as soon as the third party is in control it's then the question do you just hold accounts or is it the collective investment scheme and that then you might be in trouble if you don't have the appropriate licenses okay well this is very insightful and and you thomas is an expert in all that is tax what do you believe the importance of taxes within the cryptocurrency world yeah certainly as soon as someone is

generating income capital gains or even there is just some wealth accumulated in switzerland it gets relevant so whether people are just buying and selling or whether they're starting mining or staking whether they invest in certain security-like tokens that generate dividends or rewards certainly it's very relevant for them personally in order to declare it correctly locally in switzerland we know the rule that private capital gains are tax-free so if i just buy and sell privately and i'm very lucky that actually it didn't happen but if i would have

invested in 2013 in ethereum i may and i would sell now i would generate a big capital gain and in switzerland this is tax-free if it's private however if it's performed as a business it's not and that's not the question what's the difference when does a management of funds get into business qualification and because then as a business you're subject to capital gains taxation you're also subject to social security etc so that's an important topic on on personal level now for companies yeah other topics are important as well

one was let's say ico accounting in a way so there have been a lot of transactions kind of crowdfunding transactions of projects and there the question is always what is really the underlying relationship so somewhere is paying something and someone else is promising something and the question is what does this promise is this a the promise to perform a project to develop something or is the promise just to send back an ether or any other cryptocurrency or is the promise like a financial instrument to say actually i will pay out certain rewards

out of my profit in the future and you get the participation of it and dependent on the qualification of this relationship it might have different tax implications so either it's the transaction itself is subject to vit so vit is an important topic that it's still a little bit unclear how certain transactions are treated since certainly these decentralized aspects are very new and you don't really know who is actually your counterpart in certain transactions on the other hand we also know stamp duties on securities transactions or withholding tax on dividends etc so

you you really need to dig a little bit and qualify the underlying relationship in order and to qualify the transaction from a tax point of view yeah okay i see that and probably due to blockchain technology being able to truck and trace the transactions within it it probably becomes harder for various malicious activities individuals if they wanted to tax a void for example or evade it's much harder as you're able to see all the transactions going on within the blockchain am i right yeah that's right you know so certainly on the first use there are actually everything is anonymous and no one knows what's happening but actually as soon as you said as soon as you have

the link from one person to a public key you can actually track all the transactions and so that's also i've said once blockchain is one of the baddest idea worst idea to be criminal because yeah it's all transparent certainly there are different types of blockchains etc but i like to compare it with cash you know so if you have cash at your home under your mattress or wherever you have stored it no one knows as soon as you buy a lambo or a house or a yacht or whatever you want to buy and so tax authorities certainly do this wealth comparison so next year you you file your tax

return and you have a big house in it and they don't see any income from last year so yes certainly they will ask questions and that's why certainly if you only own very low amounts and you just cry a little bit as a hobby it's not no issue but as soon as the amounts are relevant and people should be careful and should really declare their assets in order not to get into troubles later there is an option in in the law that if you have kind of forgot to declare certain assets in the past you still can do this and it's not really a criminal act if you come forward on your own before they catch you yes before they figure it out afterwards

it's too late most likely okay but that's good to hear that for our listeners that next time they want to buy their lamborghini with their bitcoin gains that they need to be a little bit careful of how this looks great and so do you think tax has a big role to play in why the crypto valley and over 500 startups now were founded in the canton of zug yeah i think it's very important in a way that in switzerland you can discuss all transactions you can discuss openly with the tax authorities so if you don't know how to treat something or if you would like to treat him in a certain way but you're unsure whether this is accepted it's possible to talk to the tax

authorities and it's kind of an easy or a friendly relationship that may be the right time it's a friendly and open relationship to the tax authorities in other jurisdictions like the us actually sometimes i have the feeling every taxpayer is on the first side seen as a criminal as a potential criminal and then you need to prove that you're not here in switzerland it's a little bit daughter way around so innocent until proven guilty yeah that's right and even tax authorities see the taxpayers more like customers that are getting a service from the state and certainly need to pay taxes but it's a relationship where you you try to figure out together what the right

qualification is and so that helps also in tax area so we call this tax rulings where we summarize certain transactions and facts and also the tax consequences and then you can hand this in with the tax authorities and discuss it and if they agree they sign it so in advance you already have a kind of 100 opinion by the authorities how they would treat a certain transaction and i think that gives a lot of legal certainty to any type of business so it's not not limited to crypto that's very important for switzerland and the canton of zoo specifically that so many companies have

set up operations in that location and in switzerland every canton actually is responsible for their cantonal but also for the federal tax okay so that means just for income tax you talk to either to the zug authorities zurich authorities or wherever you wherever you live and certainly the smaller cantons they have the advantage that it's easier to talk to the one specific person that is responsible for income tax corporate tax whatever so that's why it's a lot of new businesses and startups if they are in a yeah maybe just a very specific industry

like now crypto or like commodities trading or certain others they try to or they like to locate in a in a smaller canton like 6000 or tug or even up and sell or need walton because it's just the easier access to the tax authorities and in the bigger canton like zurich geneva it's a little bit more cumbersome to really speak to the right people okay well that's very interesting and it's great that that framework is in place and that that friendly relation is there as well it's wonderful to hear and so as a whole where do you see the future of tax headed in the blockchain space specifically yeah at the end i see blockchain as just the technology and

not the specific industry so i think at the end it's important that the authorities understand the technology understand some specifics and then apply these in a very neutral way to all the different taxpayers whether they're in financial industry or logistics or community trading or whatever where this technology then can be used in the future but i think there was some learning process certainly also on the authorities side they have done their housework they have also published certain guidelines so the vit authorities published guidelines how they treat certain transactions the federal authorities

have published from a reforming tax and stamp duty point of view certainly there are still some gaps some are bigger some are smaller but because it's really not that easy to qualify certain transactions but i see that the authorities are open to discuss and we try to get with the clients with the community to educate stem further to try to present some solutions to some questions and i think that i mean the main topic at least certainly from a tax point of view is is the decentralization and that you are communicating with a decentralized system and you can use it and you can transact and

sometimes something comes back like in mining or staking and but you don't have a specific counterparty that is identified like in maybe other transactions where you always know this interest is paid by mr x and he is located in jurisdiction epsilon etc and here you're transacting with a decentralized network that does not have really a location and there's also not a legal subject etc that creates a lot of let's say gray areas or questions that we need to solve but i think switzerland is here in a good shape that the authorities are open and they also

like to work with taxpayers on such solutions now that's great to hear and uh yeah i think doing your your homework is very important i think i think my high school teachers would approve that message and it's an important one so thank you thomas for those valuable insights to do you have any last words for our audience on this matter yeah i think certainly the next important step from a civil law perspective will be this dlt law that hopefully will be enacted next year so it's still in parliament but it looks good so that would be the next step that really digital transfers of claims and securities are valid from a civil law perspective um so that would open

a lot of possibilities in d5 and decentralized exchanges etc i think that's a very important step and on the other hand just to everyone that is holding some crypto assets just if you have not declared it in a tax return you might be in trouble so you should resolve this situation well you heard it hey first please make sure you deal with your tech side and well i hope we were able to shed some light on the the hidden world of crypto and taxes so if you enjoyed this conversation feel free to check out more on our website cryptovalley.swiss where we host plenty of events educational content and even provide

information on how you can join our growing community so thanks again thomas for joining us um stay tuned stay safe and until next time from the crypto valley in switzerland bye-bye all right thanks oh