That same year, Kik Interactive, a Canadian mobile news start-up, raised US$50 million after filing securities with the SEC and selling SAFT securities to accredited investors. However, when the same company launched its second round of financing a month later, they did not do so through SAFT agreements and instead sold digital tokens that could be used as utilities for its service. The company argued that tokens were no longer an investment. Now, two years later, Kik is facing an SEC complaint about a $100 million unregistered ICO. This shows why more and more crypto-projects are turning to SAFTs to raise funds – everything else seems to mean legal recursions on the street. The use of this two-tiered model is intended to provide a funding model for symbolic investments that serve the company`s purpose. If successful, token exchanges can allow investors to participate financially in the (new) development of the network, without taking significant financial risk. In addition, these agreements are intended to encourage more institutional investors to participate in the markets. The absence of guidelines for sales of tokens, SAFT and secondary futures contracts on SAFTs means that it is virtually impossible to determine with certainty the tax treatment of the various instruments in the United States and to determine whether a constructive sale takes place at the conclusion of one or more of these agreements. Therefore, SAFT holders entering into a secondary futures contract for the FTSA should consult with their tax advisors to determine whether the conclusion of the secondary futures contract on the basis of the actual facts of the transaction will likely lead to a constructive sale of the FTSA for tax purposes and the applicable tax reporting obligations.
In 2014, the IRS issued the 2014-21 press release and updated it with FAQs that provide that the convertible virtual currency is treated as “real estate and general tax principles applicable to real estate transactions for virtual currency transactions.” Therefore, the issuance of such virtual taxes by a company is taxable for federal income tax purposes. Although there is no definitive prognosis, it is likely that the digital tokens underlying SAFTs will be considered property for U.S. income tax purposes. Given the limited instructions that tokens describe as property, some practitioners have attempted to incorporate concepts and rights into the token instrument, which has the effect of classifying the je-token as equity or, more rarely, debt according to basic tax principles. An entity issuing equity or debt is not taxable for the issuance of both. What do you think of the use of TFSAs as a form of fundraising? Tweet us to @Liquid_Global! From the outset, the ISSUE of SAFT has raised difficult and controversial legal questions within the framework of securities, commodities and tax legislation in the United States. In the meantime, transfers of secondary interests to existing FTAs are similarly a number of difficult issues and risks that should be carefully considered by both potential sellers and buyers in consultation with their legal advisors. Tokens like “something else.” The lines between different types of digital assets can be complex and confusing. Industry commentators have highlighted technical distinctions between tokens, coins, digital currencies and virtual currencies. Some commentators have argued that some tokens may be “utility tokens,” with the result that they are neither titles nor commodities.