Initial Exchange Offerings (IEO) in Germany
Legal and tax advice for IEOs and ICOs
Despite the success of the Initial Coin Offerings (ICOs), alternatives to the ICO crowdfunding model were sought at the same time. The so-called Initial Exchange Offerings (IEOs) are a new ICO variant that combines several advantages.
In contrast to an ICO, the tokens are not issued directly by the issuing company but via an exchange platform. The fundraising event, i.e. the collection of capital, then takes place directly on a crypto exchange.
Similarities between IEO and ICO
The IEO shares some essential commonalities with the ICO:
- A company issues tokens.
- The tokens are bought by investors in the expectation of realizing speculative profits or using the platform's services.
- The company gives the token holders the opportunity to use certain services on the blockchain platform. However, no guarantees are usually given for any service. It is almost impossible to sue for a right to a service. If profit promises or any asset-like rights were granted, one would have to deal with a Security Token Offering (STO), because such promises change the character of the token to an equity/security.
- IEO and ICO are usually preceded by a seed phase and a private sale.
Differences between ICO and IEO
In the case of an Initial Exchange Offering, the tokens are not sold directly via the company's own platform, but rather using the service of a mediating Exchange.
Whereas an ICO involves two parties (issuer and investor), an IEO usually involves three parties (issuer, investor and exchange).
Depending on the exchange, the integration of the exchange can represent a considerable marketing advantage, since the user base of the exchange can be accessed. In addition, a listing on renowned stock exchanges is a kind of legitimation for the credibility of the project.
Of course, there are no guarantees for success and even projects within the framework of IEOs can have a fraudulent character. Investors should therefore take the utmost care when making investment decisions.
What is an IDO?
An IDO is an initial dex offering. Dex stands for Decentralized Exchanges. They are therefore a special form of the IEO, whose only special feature is that the exchange used is decentralized.
For example, the well-known Binance exchange offers IEOs on the "Binance Launchpad" exchange and IDOs on the decentralized "Binance DEX" exchange. The first IDOs on Binance DEX (RAVEN, Cubiex eSports) were launched in July 2019 and proved to be a great success for participants.
Among the most interesting developments for companies was the announcement by Binance that successful IDOs could possibly lead directly to a listing on Binance.
How are IEOs taxed?
The taxation of IEOs is no different from that of ICOs. However, there are some additional considerations.
While with the ICO the questions mainly revolve around the legal and in particular trade and turnover tax legal classification of the token, further questions have to be clarified with the IEO and IDO:
- How should the listing fee be treated for tax purposes?
- How are repurchases of one' s own coins treated in accounting and balance sheets?
- Is it possible to deviate from the official stock market value in the balance sheet if demand for the coins has so far been very low and if the company itself were to exploit the coins, this would lead to an immediate collapse in the stock market value?
WINHELLER provides advice from conception to bookkeeping
Our team is at your disposal during the planning phase as well as during the ongoing accounting and balancing process.
Our experts are at your disposal for all legal questions concerning regulation, data protection, KYC (know your customer) etc. as well as for tax and accounting matters. Do not hesitate to contact us should you have any questions.
Your consultants for Initial Exchange Offerings
Would you like to check whether an IEO is the right way to finance your business or are you already in the implementation phase? Your contact persons for Initial Coin Offering (ICO) are
- Senior Tax Accountant Jürgen Schwendemann,
- Attorney Benjamin Kirschbaum and
- Attorney Phillipe D. Winterstein.
The easiest way to contact us is by e-mail (firstname.lastname@example.org) or by telephone (+49 (0)69 76 75 77 80).