Switzerland has always been a world center for the wealth management industry, having about $2 trillion, or 27%, of global outside wealth. Beginning from 1934, Swiss bankers and regulators have resisted the efforts of foreign tax regulators, including the Internal Revenue Service (IRS) in the USA, to get info about secret bank accounts in Switzerland. They announced agreement with Swiss law and the necessity to protect the privacy of their consumers, as Swiss private bankers smuggled US taxpayer wealth from the US to Switzerland in all sorts of creative methods. From sheafs of cash hidden inside rolls of newspaper to setting up shell firms, to jamming diamonds into dentifrice tubes, Swiss bankers helped thousands of rich American customers to evade US taxes through secret offshore bank accounts.
After refusing on their well-known banking secrecy laws with a little nudging from the US Department of Justice (DOJ) and the IRS Criminal Investigations Division (IRS-CI) which shut down the oldest private bank and slapped the biggest and most famous Swiss banks with billions in fines for aiding in US tax avoidance, Switzerland faced losing its competitive edge over rival financial markets.
However, you shouldn’t count Switzerland out just yet. By creating a global center for cryptocurrencies known as the “Crypto Valley” in Zug, and the integration of forward-looking regulation by the Swiss Financial Market Supervisory Authority (FINMA), Switzerland is emerging as one of “the world’s leading ecosystems for crypto, Blockchain, and distributed ledger technologies” in accordance with O. Bussmann, the founder of the Crypto Valley Association. J. Schneider-Ammann, the head of the Swiss Department of Economic Affairs, states that the country is becoming a “crypto nation” for the digital revolution with a flourishing ICO market.
Initial Coin Offering (ICO) is a new method of raising capital funds empowered by digital currencies and Blockchain technology where participants invest fiat currencies and get ‘tokens’ or digital assets in return. A person, project or company in need of capital creates a new kind of digital coin and sells a tranche of them for fiat currencies on a digital trading platform or exchange.
During the last year, Swiss-based ICOs raised about $550 million in funding, which was about 14% of the global ICO market, worth about $4 billion. The Zug-based Tezos ICO alone raised $232 million in July 2017. Tezos foundation is facing at least half a dicker class-action suits in the US from those who say they
were disoriented and deceived. “Many Swiss ICO’s are structured as foundations that applied for non-profit tax status and the money raised in these ICOs are treated as a donation that may not be returned to ICO investors” explained Dr, Luka Muller, legal partner of Swiss law firm MME, which helped set up the Tezos foundation as well as some other large ICOs.
FINMA outlines a regulatory take to ICOs
As a reply to the sharp increase in the number of Swiss ICOs, on February 16 2018 FINMA published guidelines on ICOs under the Swiss anti-money-laundering and securities laws. Under regulatory guidelines issued, many ICOs will be treated as securities in Switzerland.
There is a number of exceptions, for instance tokens used to access a platform that is already up and running, or for cryptocurrencies that function only as a way of payment. Neither will be considered securities, FINMA claimed, while the latter would be subject to anti money laundering regulation.
“Our balanced approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system,” FINMA CEO Mark Branson commented.
Switzerland is “unofficially” a cryptocurrency tax haven
Switzerland is certainly an attractive place for ICOs both for investors and publishers because of the auspicious Swiss tax laws.
Cryptocurrencies are neither money nor a foreign currency, nor a financial supply for goods and services tax (GST) aims.
Dealing with tokens that qualify as securities may give rise to securities transfer tax duties for domestic tools at a rate of 0.15% (or 0.30% for non-domestic tools) in cases where a Swiss securities dealer was involved in the transaction.
Cryptocurrencies are an asset for capital gains tax (CGT) aims, which only applies to someone who qualifies as a professional merchant. Holders or investors of cryptocurrencies are subject to a wealth tax at the rate determined by the tax authorities on December 31 of the fiscal year.
An equity token, given by an ICO, may be subject to a one-time capital debt of 1%, unlike a debt token. Any distribution of gain on equity tokens or payments on debt tokens is subject to Swiss withholding tax at a size of 35%.
US Swiss ICO investors keep away from of the IRS-CI
The US Swiss ICO token investors not involved in class actions lawsuits should know that fresh off its success in uncovering US assets hidden in Swiss banks, the IRS-CI has assigned a special team of agents to investigate if cryptocurrencies are being used to cheat the tax authority. “It’s possible to use cryptocurrencies in the same fashion as Swiss bank accounts to facilitate tax evasion,” Don Fort, head of the IRS-CI, explained to Bloomberg News.