Portuguese Tax Authority Issues Ruling on ICO and VAT: Expert Take

Following a recent tax ruling issued by the Portuguese Tax Authority, this article discusses VAT-related implications of cryptocurrencies, tokens, and initial coin offerings.

On the nature of tokens and VAT systemTokens have an essential role in initial coin offerings, where tokens may be used as a medium of exchange with a function similar to a fiduciary currency, e.g. Bitcoin.

According to VAT regulations, VAT applicability, liability, and exemption from VAT all depend on the nature of the goods or the services subject to supply as well as certain other circumstances, e.g. the parties of the transaction.

As tokens can be used for several purposes, VAT implications of a single token may vary based on its characteristics, functionalities, and final use.

Following this legal uncertainty, the PTA recently issued a binding tax ruling addressing the VAT liability of a token in the context of an initial coin offering.

Tax ruling by the Portuguese Tax AuthorityThe tax ruling request arose from an ICO and the token in question, which had been built on top of Ethereum, was described to be similar to Bitcoin.

The essential question brought up in the request was whether VAT exemption could be granted to the token by applying the exemption foreseen for transactions concerning currency, banknotes, and coins used as legal tender.

Other matters to be discussed concerned the rendering of services through an electronic platform in the light of VAT purposes as well as the registration on the Mini One Stop Shop.The PTA concluded that, in principle, transactions containing a token may be considered an onerous transfer of goods and, thus, prima facie liable to VAT. Notwithstanding, the Tax Authority confirmed that the transfer of tokens may be exempt from VAT under the exemption foreseen for transactions concerning currency, banknotes, and coins used as legal tender.

Lastly, the PTA considered that the VAT exemption may also apply in other EU Member States since VAT is a harmonized system.

With regard to the supply of electronic services, the PTA stated that, pursuant to the Portuguese VAT Code, the electronic rendering of services is taxable in the state of the acquirer, whether the latter is a consumer or a company, and regardless of the state of the supplier.