2021-12-18 19:00:46
DAOs, Token Holders Could Face New Tax Liabilities, PwC Report Warns. People who are part of Decentralized Autonomous Organizations (DAOs), or even holders of certain decentralized finance (DeFi)-focused governance tokens, could have tax liabilities that far exceed what they expect to see, a new PwC report on crypto taxation has warned.
The report, which looked into taxation of income arising from fields such as DeFi, Proof-of-Stake (PoS) protocols, and non-fungible tokens (NFTs), said tax authorities are having an increasingly difficult time keeping up with the space, which is moving “at a pace unseen in many other industries.”
On the issue of DeFi taxation, the major consulting company suggested several models that tax authorities could adopt, including taxing holders of a protocol’s governance token, taxing the initiators or the developers behind a protocol, or even taxing liquidity providers directly.
“A first step is to consider the level or the degree of centralisation or decentralisation, and in which legal form the protocol is organised,” the report said.
It added that in cases where a protocol can be considered relatively centralized, for example because it “is carrying out the actions of a legal person (such as a company),” the tax situation is pretty clear:
“[…] it will be that legal person that is responsible for paying any tax that may be due,” the report said, before adding that “complexity increases when a protocol or [decentralized application – dApp] is not working for a legal person, company or individual.”
But although there may not be a “legal person” behind a protocol, the report warned that DAOs, which are sometimes set up to govern DeFi protocols, could be considered “a partnership” under for example English contract law.
“In a worst-case scenario, individuals who have become de-facto partners simply by purchasing a governance token could find themselves unwittingly liable, although this would seem to be extreme,” PwC’s researchers wrote.
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