DAOs and governance tokens: income, gain or taxable person?

The nature of the governance token

A governance token confers on its holder voting rights over the protocol: proposals, modification of parameters, disposal of the treasury (the protocol’s common fund). It may or may not have a market value. Where it is received as a reward for an activity —liquidity mining, participation in votes, contributions to the protocol—, it generates income that must be classified.

The tax framework: three possible classifications

Depending on the context, three classifications are possible. The first, income from an economic activity, where the taxpayer carries on an organised activity to obtain them —for example, liquidity mining as a habitual activity—; they are taxed in the general base at their market value at the moment they are obtained. The second, investment income. The DGT has already classified in this way, with binding effect, the rewards of a validator that merely locks up crypto-assets in staking: income from the transfer to third parties of own capital (Article 25.2 LIRPF), valued at the market value of the day they are received (Article 43.1 LIRPF) and included in the savings base (V1766-22, of 26 July 2022). That classification, however, depends on the specific mechanics of the protocol and of the right received; other forms of staking or of economic transfer of tokens may call for a different analysis. The third, a capital gain. Where the tokens are received for free, the delivery deriving neither from an employment relationship nor from an economic activity —the typical case of the airdrop—, the DGT classifies them as a capital gain in kind (Article 33.1 LIRPF), measured at their market value in accordance with Article 37.1.l) LIRPF, which deals with the acquisition of assets or rights that do not arise from a disposal, and included in the general base in the period in which they are received (the criterion of ruling 0018-23 —non-binding— of 29 June 2023; in line, nonetheless, with the DGT’s general criterion on the gratuitous nature of the airdrop). One should not assume that this income will go to the savings base: the savings base is reserved, where applicable, for the subsequent disposal of the token.

The DAO as a taxable person

If the operator is a DAO with a presence or effects in Spain, the question arises of whether it can be considered a taxable person for Corporate Income Tax (IS) or for Non-Resident Income Tax (IRNR). DAOs do not have recognised legal personality in Spain, which creates uncertainty: depending on their configuration, they could be classified as a community of property, a civil-law partnership or, in the worst case, an irregular company, with different tax consequences in each case. If classified as a community of property or a civil-law partnership without legal personality, the income-attribution regime would operate (Articles 8.3 and 86 et seq. LIRPF; Article 6 LIS): the entity would not be the taxpayer and it would be the members —depending on their residence— who would include the attributed income, which channels the question back to the Income Tax or Non-Resident Income Tax of each member.

There is at least one useful ruling, V2479-22, which analyses the services provided by an individual to a DAO for the purposes of the Tax on Economic Activities (IAE) and VAT, contemplating remuneration in cryptocurrencies. In fact, the ruling itself starts from the premise that the DAO «lacks legal personality, a specific location and a tax identification number», and from there infers, for the purposes of the place of supply for VAT, that the provider may treat it as a recipient that does not act as a business or professional, with the result that the service is subject to VAT in the territory where the tax applies at the general rate of 21 %. This is, however, a presumption that admits proof to the contrary: if the DAO is structured through an entity with legal personality that acts as a business or professional —the common case of the wrapper in the form of an LLC—, the general place-of-supply rule between businesses would operate (Article 69.One.1.º LIVA) and the service could fall outside the scope of Spanish VAT. What remains unresolved directly is the taxation of governance tokens received in passive contexts and, above all, the possible treatment of the DAO itself as a taxable person for Corporate Income Tax or Non-Resident Income Tax.