Dieses Kapitel untersucht die transformativen Auswirkungen technologischer Innovationen, insbesondere Blockchain und dezentralisierter autonomer Organisationen (DAOs), auf rechtliche Rahmenbedingungen und Steuersysteme. Es untersucht den historischen Kontext rechtlicher Anpassungen an technologische Veränderungen, von der Lex Mercatoria bis zur Lex Informatica, und die Entstehung der Lex Cryptographia im Kontext von Blockchain-Ökosystemen. Der Text untersucht die regulatorischen Herausforderungen, die von DAOs ausgehen, einschließlich ihres dezentralisierten Charakters, des Mangels an klarem Rechtsstatus und der Auswirkungen auf die Steuersouveränität und -einhaltung. Außerdem wird das Potenzial diskutiert, DAOs als Werkzeuge für die Steuerbehörden zu nutzen, die Steuererhebung durch intelligente Verträge zu automatisieren und die Einhaltung der Vorschriften zu verbessern. Das Kapitel schließt mit der Forderung nach einer formalen Regulierungsstruktur, um gleiche Wettbewerbsbedingungen für alle Beteiligten zu gewährleisten, und spricht sich für einen harmonisierten EU-weiten Rechtsrahmen aus, der auf junge und innovative Unternehmen zugeschnitten ist. Darüber hinaus wird die Rolle der DAOs bei der Erleichterung der Steuererhebung und die Notwendigkeit präziser Daten und einer robusten Infrastruktur zur Unterstützung dieses Übergangs hervorgehoben.
KI-Generiert
Diese Zusammenfassung des Fachinhalts wurde mit Hilfe von KI generiert.
Abstract
Technological innovations have historically reshaped legal frameworks by introducing principles that redefine the creation and application of laws. In the Middle Ages, fragmented national legal systems hindered trade, leading merchants to adopt Lex Mercatoria, a transnational commercial framework facilitating efficient dispute resolution. Similarly, the digital revolution gave rise to Lex Informatica, in which IT protocols operate as regulatory mechanisms beyond traditional legislative control. With blockchain technology, Lex Cryptographia has emerged as a self-governing system, enforcing rules through software under the brocade of “code is law”. This shift challenges conventional legal jurisdictions and requires innovative legal approaches to preserve the “rule of law”. In taxation, the existing models based on income and wealth are insufficient for digital economies. Instead, new frameworks must account for intangible digital assets and economic activities, ensuring that taxation aligns with territorial connections despite the borderless nature of digital wealth. To address these challenges, legislators must redefine their notion of value and strengthen indirect taxation mechanisms, particularly in data-driven economies. Interdisciplinary collaboration between legal experts, computer scientists, and policymakers is crucial for developing resilient legal systems. Investing in education and skill development is essential to ensure that legal frameworks evolve in tandem with technological advancements.
1 Introduction
Technological innovations have historically played a pivotal role in shaping legal frameworks by introducing novel principles that transform the foundational paradigms upon which laws are conceived.
During the Middle Ages, when fragmented and inefficient national legal systems impeded international commerce, merchants adopted the Lex Mercatoria, a customary legal framework based on internationally accepted commercial practices. This transnational system created a “common playing field”, enabling efficient dispute resolution and facilitating cross-regional trade.
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A similar phenomenon emerged with the advent of the digital revolution, as Information Technology (IT) architectures and protocols gave rise to Lex Informatica. Unlike traditional legal systems, where legislative authority resides with national parliaments and judicial power with courts, Lex Informatica evolved under the guidance of technical experts and operated through automated network processes encompassing their jurisdictional domain.
This framework introduced innovative regulatory and governance mechanisms aligned with an increasingly digitised global environment.
The contemporary evolution of blockchain ecosystems has enabled protocols to operate autonomously from traditional jurisdictions, thereby establishing decentralised and automated environments that serve as the Foundation for Artificial Intelligence (AI) systems. The emergence of Distributed Ledger Technology (DLT) within this context represents another significant shift as blockchain protocols operate autonomously from conventional legal frameworks. Within this context, Lex Cryptographia1 has emerged as a self-governing regulatory framework in which rules are created and enforced under the brocade of “code is law”, epitomising an era where software serves as the foundational regulatory mechanism, transcending physical boundaries.
Given the rapid advancement of technology, it is imperative to incorporate solutions rooted in innovative approaches into contemporary legal systems rather than merely adapting traditional models. To this end, cooperation among legislators, legal scholars, and computer scientists has become essential for defining a new, resilient legal system. Such interdisciplinary cooperation ensures that legal systems evolve to address the challenges posed by technological innovation while upholding the “rule of law”. This necessitates significant investment in education and skill development, fostering a proactive approach to identifying novel legal frameworks capable of addressing these challenges.
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In fiscal matters, this entails identifying new approaches to the notion of the ability to pay, such as the capacity to manage intangible spaces and resources that go beyond conventional notions of income or wealth. This requires establishing a fiscal law framework capable of constructively addressing the evolving digital economy while also tackling the emerging forms of inequality stemming from unequal access to digital technologies, commonly referred to as the digital divide.2
Within this framework, tax legislators’ primary challenge is to establish a new definition of value3 that will ensure taxpayers are taxed according to their territorial connection to a jurisdiction, even when dealing with an abstract digital manifestation of wealth characterised by a lack of territoriality (a-territoriality).
To this end, this essay explores the following primary research question.
“How should countries allocate taxing rights within the DAO environment?”. To provide a comprehensive response, the analysis is structured around two key sub-questions:
1.
“How can the OECD Model guide the allocation of taxing rights over DAO transactions?”
2.
“What technology-related considerations should inform policy decisions regarding the allocation of taxing rights over DAO transactions?”
The methodology employed in this study is highly interdisciplinary, focusing on the technological developments of DAOs to stimulate discussions on various taxation approaches by offering reflections de jure condendo for scholars and regulators. It provides an overview of the technological and regulatory framework to ensure technological advancements remain consistent with constitutional principles and fundamental rights.4 This includes an in-depth analysis of the framework provided by the OECD Model, followed by a functional examination of how the technological features of DAOs affect income qualification and the allocation of taxing rights in DAO-related transactions. Thus, it is necessary to strengthen indirect taxation through new mechanisms to capture the value stemming from data consumption.
The analysis first examines how the regulatory framework has been reformed to establish a minimum threshold of legal certainty within the new economic environment shaped by the development of Distributed Ledger Technology (DLT) (Sect. 2). Subsequently, the notion of Decentralized Autonomous Organizations (DAOs) is explored, focusing on their integration into the regulatory framework (Sect. 3). This examination begins with an analysis of the legal status of DAOs, followed by an examination of U.S. practice and jurisprudence, which have already faced some situations establishing some fixed points. This section provides more information about the EU regulatory framework to determine the existence of formal requirements that may establish a territorial connection between DAOs and EU Member Countries jurisdictions. Furthermore, this study investigates the evolution of the tax nexus notion with reference to DAOs (Sect. 4) and token holders (Sect. 5). Moreover, the study provides an overview of the evolution of the exchange of information (Sect. 6), the new framework of indirect taxation (Sect. 7) and some insight into the potential of DAOs as a tool for tax authorities.
Based on the evaluations provided, this study’s conclusions will assess how the EU regulatory framework interacts with DAOS’ economic activities and how direct and indirect taxation mechanisms can capture the value they generate.
2 The Evolution of the Regulatory Framework Through Technological Innovation
In traditional accounting, a ledger is a physical book or document used to record transactions and track changes in data manually. However, technological advances have enabled the digital recording of transactions in an electronic ledger that can be distributed across multiple locations or participants through a network of computers or nodes—commonly referred to as Distributed Ledger Technology (DLT).5 The most well-known form of DLT is blockchain technology, which is a shared abstract data structure consisting of a sequential chain of cryptographically linked blocks. This structure ensures data integrity and preserves the chronological order of recorded transactions. Compared to other DLTs, blockchain operates on a decentralised model in which each network node retains a complete copy of the ledger, encompassing all transactions conducted by all participants.6 Within a blockchain, transactions are verifiable and immutable without the consensus of network nodes. This technology introduces a novel governance paradigm characterised by the progressive elimination of intermediaries, which are often costly and have access to sensitive data transmitted where technological mechanisms serve as infrastructure and regulatory frameworks enabling transparency.7
Blockchain networks are generally classified as permissioned or permissionless depending on their design regarding access control, data visibility, operational restrictions, and consensus validation criteria. The key difference is that in a permissioned blockchain, access to the network and participation in the consensus process is restricted to a designated group of authorised participants. In contrast, in permissionless blockchains, any individual can access and join the network, validate transactions, and engage in the consensus process without requiring prior approval, authentication, or identity verification.8 These networks are commonly utilised for cryptocurrencies and decentralised finance (DeFi). Prominent examples of permissionless blockchains include Bitcoin and Ethereum.
The emergence of DLT has endowed the development of “smart contracts”, initially conceptualised by Nick Szabo as “a set of promises, specified in digital form, including protocols within which the parties are to perform on these promises”.9 Under this definition, the “set of promises” may encompass contractual clauses, legal provisions or corporate procedures, embodying the immutability and transparency inherent to their underlying networks.10 Furthermore, these promises are “specified in digital form”, adhering to the “code is law” Brocard underpinning the blockchain revolution.11
3 DAO: Components and Definition
The European Law Institute defines the Decentralised Autonomous Organisation (DAO) as: “an organisation encoded as a computer program on a blockchain, facilitated by smart contracts, operating based on votes by members holding digital tokens of their membership”.12 This definition pinpoints the technical features while leaving substantial uncertainty regarding such entities’ legal classification and status.
To address this ambiguity, it is beneficial to consider the insights provided by Vitalik Buterin,13 the creator of the Ethereum blockchain network, the infrastructure that first enabled the development of decentralised finance (DeFi). Buterin elucidates the technological and organisational foundations of DAOs by deconstructing the acronym into its constituent components: Decentralised Organisation (DO) and Autonomous (A). The notion of a DO refers to a horizontal technological architecture in which transactions occur without a central authority, eliminating hierarchical structures for execution and post-transaction control. These operations are governed by pre-established rules, shared among participants in advance and encoded within smart contracts. The notion of A relates to the idea of an Autonomous Agent in computer science: an entity that requires human intervention only during its initialisation. Once created, it executes predefined functions independently without further human oversight. This principle parallels the operation of computer viruses,14 which propagate autonomously across systems without ongoing human interaction. Likewise, an Autonomous Agent ceases operations upon fulfilling its designated purpose.
This innovative software architecture enables participants to interact within a decentralised and transparent environment, where each transaction is executed through smart contracts and recorded on the blockchain. The immutable nature of blockchain records ensures that DAOs eliminate the need for trust among contracting parties. As a result, DAO members rely on the automated execution of smart contracts, removing the necessity for personal relationships or concerns about the reputation of administrators or officials. By mitigating corruption and lack of transparency risks, DAOs represent a significant step towards more inclusive and democratic organisational management.15
However, despite the transparency provided by blockchain infrastructure, the anonymous participation of DAO token holders presents challenges related to compliance with anti-money laundering (AML) and tax regulations. Furthermore, while the autonomy inherent in DAOs offers significant operational advantages, it limits the flexibility associated with the “efficient breach of contract” theory that promotes efficiency in contract performance by allowing parties to breach a contract when unforeseen circumstances arise that could not have been anticipated during negotiation and codification.16
Over time, scholars17 have systematised the variety of DAO business models that have emerged into three main categories and five principal clusters. The primary categories are Governance, Community, and Treasury. The main clusters include on-chain product and service DAOs, investment-focused DAOs, networking-focused community DAOs, off-chain product and service DAOs with a community focus, and off-chain product and service DAOs with an investor focus.18
Finally, to represent the phenomenon quantitatively, the current market capitalisation of the largest DAO is USD 24.2 billion.19
3.1 The Legal Status of DAOs
A DAO’s governance authority is distributed among its members. Its decentralised technological architecture transcends traditional corporate distinctions between ownership—represented by token holders—and management, which is typically entrusted to executives. In a DAO, decision-making authority resides collectively with token holders in proportion to their governance token holdings. These decisions are then executed through automated innovative contract protocols, eliminating the need for a hierarchical chain of command characteristic of traditional corporations.
The establishment of a DAO often necessitates the creation of one or more legal entities. These entities enable digital organisations to hold Intellectual property and asset ownership, ensure the protection and enhancement of digital resource value, and sign legally binding contracts with developers, suppliers, and strategic partners.
Without formal legal recognition, there is a significant risk that relationships between DAO token holders could be classified as de facto partnerships, potentially exposing all participants to unlimited liability. To mitigate such risks, DAOs may adopt the established legal structures available in various jurisdictions, a process referred to as “wrapping” the DAO.
The legal structuring of DAOs, which bridge the digital blockchain environment with traditional legal frameworks, remains an evolving field that requires careful consideration of regulatory compliance, governance efficiency, and the core principles of decentralisation. While each corporate structure presents distinct advantages, the challenge is to balance legal certainty with the decentralised ethos that defines DAOs.20 Ongoing regulatory developments will determine how much DAOs can achieve mainstream adoption while preserving their decentralised governance models.
From a corporate law perspective, three main corporate structures are available for “wrapping” DAOs: foundations, limited liability companies (LLCs), and business trusts (BTs)21:
Foundations operate autonomously following the founding principles enshrined in their incorporation documents, maintaining operational immutability (the “solidification principle”). This autonomous character aligns with the decentralisation ethos of DAOs, which are designed to function independently of their original developers once established. However, jurisdictional requirements regarding operational flexibility and taxation vary significantly. Switzerland and the Cayman Islands are often regarded as preferred jurisdictional choices. In particular, whereas the Cayman Islands impose no income taxation on foundations,22 the Swiss regime is more nuanced: foundations are, as a rule, subject to corporate income taxation at both federal and cantonal levels, although exemptions may be granted where they pursue public-benefit or charitable purposes.23
Limited liability companies (LLCs) provide flexibility and limited liability protection for token holders. Certain jurisdictions24 have introduced blockchain-based limited liability companies (BBLLCs), offering legal recognition for blockchain governance mechanisms while ensuring member liability protection. However, this structure necessarily introduces elements of centralisation that contrast with core DAO principles.25 Moreover, business trusts (BTs) provide flexible legal frameworks for DAO operations, particularly in managing and distributing profits. The blockchain hosting DAO smart contracts within this structure may be classified as intangible trust property. The trust deed could be integrated into the DAO protocol, and transaction processors (miners) would act as trustees.26
Contemporary decentralised projects typically operate through a tripartite structure comprising a non-legal entity (the DAO), a development company (DEVCO), and a foundation. Each entity serves a distinct yet complementary role in ensuring the project’s long-term success and sustainability.
1.
The DAO, functioning as a decentralised governance system based on smart contracts running on a blockchain operating without traditional legal status, the DAO.
2.
The Developer Company (DEVCO), typically established as a commercial entity by the project's developers, provides IT services to the DAO and the Foundation. It is responsible for implementing technical improvements, maintaining the network, and enhancing the underlying protocol.
3.
The Foundation represents the project's non-profit dimension. It promotes the protocol globally, produces educational content, and collaborates with institutions to foster adoption.27 Sometimes, the foundation issues and sells governance tokens to fund the project. Alternatively, a special purpose vehicle (SPV), often owned by the Foundation, may issue the tokens to separate fundraising activities from the Foundation’s other responsibilities.
The interaction among these three entities is crucial for the success of decentralised projects. Through its members, the DAO drives strategic and governance decisions; the DEVCO implements technical innovations and network enhancements; and the Foundation promotes global awareness and adoption of the protocol.
Despite the benefits of this structure, the interaction between the DAO, DEVCO, and the Foundation presents several legal and regulatory challenges. These interactions may give rise to value-added tax (VAT) and transfer pricing issues. Furthermore, the Foundation or SPV must comply with local and international financial regulations when selling tokens.
3.2 DAOs in U.S. Practice and Jurisprudence
One of the first Decentralised Autonomous Organisations (DAOs) to be launched, “The DAO”, developed in 2016 by Christoph Jentzsch, raised the equivalent of $150 million in Ethereum through an initial coin offering (ICO) within 15 days. “The DAO” was managed and executed by computer code on a blockchain, where decision-making occurs through a democratic vote by shareholders (who are referred to as token holders) on an equal basis. With previously defined rules, governance is managed by a self-sufficient programme, i.e., smart contracts, without a hierarchical structure.28
Following its launch, the U.S. Securities and Exchange Commission (SEC) challenged “The DAO”, asserting that its ICO constituted an unregistered securities issuance in breach of federal financial regulations.29
(A) Switzerland and the Cayman Islands are often regarded as preferred jurisdictional choices. In particular, whereas the Cayman Islands impose no income taxation on foundations (*), the Swiss regime is more nuanced: foundations are, as a rule, subject to corporate income taxation at both federal and cantonal levels, although exemptions may be granted where they pursue public-benefit or charitable purposes (**)
(*) “Cayman Islands Foundation Companies – Tax Treatment” Harneys Legal Insights (Harneys) https://www.harneys.com/media/zphoua3y/legal-insights-cayman-islands-foundation-companies.pdf accessed 21 September 2025)
(**) Giedre Lideikyte Huber, “Philanthropy and Taxation: Swiss Legal Framework” Expert Focus 2018, Geneva (university publication) https://www.unige.ch/philanthropie/download_file/view/125/458 accessed 21 September 2025, especially Art. 56(g) LIFD/DBG and comparable cantonal norms for exemption from federal, cantonal and communal income tax for foundations with public interest / charitable purposes
Later, in 2022, the Commodity Futures Trading Commission (CFTC) took action against Ooki DAO for operating as an unregistered futures commission merchant (FCM),30 thereby breaching the Commodity Exchange Act (CEA). The CFTC classified Ooki DAO as an “unrecognised association”, defining it as a voluntary collective organised without formal legal status yet pursuing common objectives. Based on this classification, the CFTC attributed personal liability to token holders who authorised organisational actions. Subsequently, on 8 June 2023, a federal judge31 issued an order and default judgement, determining that Ooki DAO had operated an illegal trading platform and acted as an unregistered FCM. Following this ruling, the CFTC32 classified Ooki DAO as a “person” under the CEA, thereby extending liability for statutory violations to individual token holders. This reasoning was upheld in the LIDO DAO judgement,33 where the court classified LIDO DAO as a partnership based on substantive analysis despite the absence of formal legal recognition. Specifically, the court considered the active role of token holders in the DAO governance sufficient grounds for partnership classification. Consequently, even minimal governance participation could constitute “involvement in the partnership”, potentially resulting in unlimited personal liability.
Based on the aforementioned U.S. law, there is a significant risk that relationships between DAO token holders could be deemed de facto partnerships without formal legal recognition. This may lead to unlimited liability for all participants. To mitigate such risks, DAOs might consider adopting established legal structures available in various jurisdictions (Wrapping DAO).
In this respect, a recent survey34 shows that 88% of operators are interested in incorporating the DAO into a corporate vehicle precisely to limit the liability of DAO members and that, in a complementary way, the main reason for not adopting a legal screen for the DAO lies in the difficulty of finding an appropriate structure in the law.
It is worth noting that on 24 January 2023, U.S. President Donald Trump signed an executive order establishing a working group tasked to develop regulations for the cryptocurrency industry and digital assets. This initiative indicates that a new regulatory framework may soon emerge, introducing specific obligations tailored to operators in the sector, distinct from those currently applied to conventional legal framework entities.35
3.3 DAOs and the EU Legal System—GDPR Regulation
In the European Union, ensuring that personal data is processed fairly, for specified purposes, and based on consent or another legitimate legal basis is a fundamental right.36 To this end, the General Data Protection Regulation (GDPR)37 governs the processing of personal data by EU institutions, bodies, and Member States when acting within the scope of EU law. Within this framework, the GDPR serves a two-fold purpose: (i) facilitating the free movement of personal data across Member States while (ii) ensuring the protection of fundamental rights as outlined in the Charter of Fundamental Rights.
Under GDPR compliance rules, responsibility and accountability for personal data processing rest with the data controller, defined as “the natural or legal person, public authority, agency, or other body which, alone or jointly with others, determines the purposes and means of the processing of personal data”.38 The primary role of the controller is “to determine who shall be responsible for compliance with data protection rules and how data subjects can exercise the rights in practice”.39 By contrast, the processor is the legal or natural person processing personal data on behalf of the controller.
A functional approach is employed to assess whether a controller or processor is established in the EU and whether the establishment represents an effective and genuine exercise of activity through stable arrangements.40 This functional approach facilitates the allocation of responsibilities based on factual influence; thus, for every data point, there must be at least one controller whom data subjects can contact to enforce their rights, regardless of the technology used—reflecting the GDPR’s technology-neutrality principle.41
The rise of blockchain technologies complicates accountability,42 particularly in public and permissionless blockchains, where no legal entity (such as a company or consortium) controls data processing. This leads to increasingly complex data environments.43 In contrast, private and permissioned blockchains provide greater compliance feasibility due as identifiable legal entities determine the means and, in many cases, the purposes of processing personal data.
A functional, case-by-case analysis is recommended to identify the controller among developers, miners, and nodes for the purposes of personal data processing.44 When a consortium establishes a legal entity, it qualifies as the data controller, given its significant control over the purposes and means of personal data processing. In the case of DAOs, a connection is established between the Distributed Ledger Technology (DLT) and the jurisdiction in which its registered office is located. Consequently, in public and permissionless blockchain environments, no single legal entity clearly qualifies as a data controller. Instead, private and permissioned blockchains45 offer enhanced regulatory compliance due to the involvement of an identifiable legal entity (such as a company or consortium) that determines the means and, in many cases, the purposes of processing personal data.46
The allocation of responsibility in decentralised systems must ensure compliance with data protection rules is upheld in practice. In this context, the Court of Justice of the European Union (CJEU)47 has ruled that a data controller “must ensure, within the framework of its responsibilities, powers, and capabilities”, that the rights of data subjects are effectively and comprehensively upheld. This reasoning implies that controllers are only liable for GDPR compliance to the extent that they are factually capable of fulfilling their obligations.
From the Tax perspective, whereas the EU intends to tax the extraction of a country’s “digital value” with “digital excise taxes”, 48 precisely as if it were the extraction of mineral resources or fuels, the data controller's role and information may be pivotal. Notably, under the current framework, excise duties apply only to alcohol consumption, energy products, electricity, and tobacco products. These products, once consumed, are removed from the production cycle. In contrast, data is fungible and can be utilised in several processes, potentially resulting in multiple instances of taxation on the same data.
3.4 DAOs and the EU Legal System—DATA Act
Under the EU Data Act,49 a smart contract50 is a “computer program used for the automatic execution of an agreement or part thereof using a sequence of electronic data records and ensuring their integrity and accuracy of their chronological order”. To “make the data available”, smart contracts must comply with the following essential requirements51:
a.
Robustness and access control: Smart contracts must be designed to incorporate access control mechanisms and a high degree of robustness to prevent functional errors and resist third-party manipulation.
b.
Safe termination and termination (i.e., kill switch): Smart contracts must include mechanisms to cease the automated execution of transactions while also providing internal functions that allow for resetting or stopping operations to prevent future accidental executions.
c.
Data storage and continuity: In cases where a smart contract needs to be terminated or deactivated, there must be provisions for archiving transaction data, as well as the logic and code of the smart contract, to maintain a verifiable record of past operations (so-called verifiability).
d.
Access control: Smart contracts must be protected by robust governance mechanisms that regulate access control.
e.
Coherence: Smart contracts must align with the terms of the data-sharing agreement they execute.
Access control requirements can consistently be enforced at the smart contract layer by adding conditional statements that are satisfied only when executed by specific users or under conditions that can change over time. Governance strictly depends on the type of blockchain network. In permissioned blockchains, governance can be explicitly established at various levels, for instance, by forming a consortium, sub-networks, or private collections for transmitting sensitive data. Conversely, in the case of permissionless blockchains, governance is inherently absent at the network level due to the open and decentralised nature of such blockchains. Indeed, in a permissionless setting, governance considerations are primarily relevant for write access, as reading data is unrestricted and does not require smart contracts.52
3.5 DAOs and the EU Legal System—MICA Regulation
The Regulation on Markets in Crypto-Assets (MiCA)53 marks a significant advancement in standardising crypto-asset requirements within the EU. This regulation aims to ensure uniform supervision and oversight across EU jurisdictions by establishing common standards for public crypto-asset offerings and crypto-asset service providers (CASPs).54
Recital 22 of the MiCA Regulation is particularly relevant to this discussion, as it excludes from its scope “crypto-asset services provided in a fully decentralised manner, without any intermediary”. However, the regulation does not provide a precise definition of “decentralisation” beyond the general reference to the absence of intermediaries. For DAOs, this lack of clarity could lead to divergent interpretations and legal uncertainties, potentially complicating compliance and increasing the risk of operating within a regulatory grey area.
From a technical perspective, DAOs can be classified according to their level of autonomy55 as Algorithmic DAOs, operating continuously through self-executing smart contracts without requiring member intervention, achieving the highest degree of independence. In contrast, Participative DAOs require periodic input from their members on operational matters, reducing their autonomy level.
It could be argued that algorithmic DAOs that exclude third-party interventions, including intermediaries, meet the decentralisation requirement under MiCA. However, regulators must assess whether the software is genuinely self-executing. This evaluation will require examining the rights associated with tokens and the organisational structure of token holders. Conversely, participative DAOs, in which token holders retain decision-making authority (e.g., access to services), depart from the concept of decentralisation outlined above.
The Danish Financial Supervisory Authority (FSA) has adopted a specific approach regarding decentralisation.56 When regulated activities are offered in a fully centralised manner, a legal entity maintains complete control over the activities, which are conducted exclusively through the company’s systems without access to a conventional blockchain. In contrast, in partially decentralised operations, a legal entity still retains control over activities but offers services using partially or fully smart contracts via the application layer. Finally, a provision is considered fully decentralised only when no legal entity exercises control over the activity and transactions or rights are structured autonomously through smart contracts deployed within the application layer.
Under this framework, as illustrated in the figure below, the defining characteristic of decentralisation is the autonomous execution of transactions free from external control (Fig. 1).
Another critical provision of the MiCA Regulation is Recital 74, stating that “to enable effective supervision and eliminate the possibility of circumventing or evading supervision, services for crypto-assets should only be provided by legal persons having their registered office in a Member State where they engage in substantial business activities, including the provision of services for crypto-assets”. This requirement has significant implications for DAOs seeking to provide crypto-asset services within the EU. Specifically, DAOs must adopt a recognised legal structure and establish a registered office in an EU Member State.
According to this regulation, if the DAO wishes to qualify as a cryptocurrency service provider (CASP), it must be “wrapped” in a legal structure with a registered office in an EU country to comply with MICA purposes. This regulatory requirement aligns with the tax nexus principle, granting the respective European jurisdiction the sovereignty to apply corporate tax and value-added tax (VAT) according to the relevant standards.
4 The DAO Tax Nexus
The allocation of taxing rights has long been a vexata quaestio of the international tax regime, dating back to the 1923 Report on Double Taxation to the Financial Committee of the League of Nations, which marked the Foundation of the international tax framework. The 1923 Report established that business income should be taxed primarily in the source country. However, its definition of “source” extended beyond the mere origin of income to include destination (i.e., market) countries. This broader interpretation aligns with the view that wealth creation encompasses all stages, from production to realisation, meaning that profit cannot exist without sales.57
The existence of a connecting factor between an entity and a specific jurisdiction defines the notion of “tax nexus”, providing justification for the latter's tax sovereignty over the taxing rights. In traditional corporate structures (commonly referred to as “brick-and-mortar” businesses), this nexus is typically established through both formal criteria, such as the location of the registered office, and substantive criteria, such as the physical presence of offices, establishments, and employees within the jurisdiction. Therefore, based on the current international tax framework, companies are taxed in the jurisdictions where they are formally established and operate through a legal entity.58 Furthermore, under the functional approach, allocating taxing rights among jurisdictions necessitates identifying each jurisdiction’s contribution to “economic value” through a functional analysis of enterprise activities within the “global value chain”. This process is based on the “separate entity approach”,59 which treats each enterprise segment as an independent entity for taxation purposes. Therefore, companies generating income in other jurisdictions through local “permanent establishments – PE”60 incur taxation in those foreign jurisdictions against which the company’s jurisdiction of incorporation usually grants a tax credit to avoid double taxation.61
The OECD Model Tax Convention, which aims to prevent double taxation on income and capital, employs the concept of “corporate residence” as a fundamental principle in providing double tax treaties between different countries. However, the notion of “place of effective management (POEM)”62 is crucial when addressing dual tax residence issues. In this regard, the OECD Commentary to the Model Tax Convention clarifies the “POEM” is the jurisdiction where “the company, was actually managed”, 63 specifically the place where “the most senior person or group of persons (for example a board of directors) made the key management and commercial decisions necessary for the conduct of the company’s business”.64
Furthermore, regarding the digital economy, in 2015, the OECD introduced the concept of Significant Economic Presence (SEP),65 which expands traditional permanent establishment principles to include foreign enterprises that, despite lacking physical presence, actively engage in economic activities within a jurisdiction through digital technologies.
Finally, in 2017, the OECD radically shifted its approach through amendments to the draft OECD Model Tax Convention and the design of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI).66 The OECD now advocates for a somewhat discretionary approach to resolving cases of dual tax residence for companies through a mutual agreement procedure (MAP) and denying treaty benefits as the preferred approach.67
Within this regulatory framework, DAOs navigate in an unknown area of international tax law. In fact, DAOs are established globally, with their blockchain code decentralised and executed across a distributed network. In such a case, determining residency is crucial for applying international tax law and its associated regulations. Most DAOs are not organised internationally with a legal wrapper; they exist just in the digital sphere. Consequently, the lack of distinct geographical boundaries in digital spaces complicates the distribution of taxing rights among countries, raising the risk of double taxation for users within the DAO68 or double non-taxation on gains.69
In addition, the inherent anonymity of DAO transactions poses significant challenges in identifying revenue-generating jurisdictions. When determining jurisdictions proves impossible, entities risk being classified as “stateless income” generators. This aspect renders DAOs potentially effective vehicles for tax avoidance through sophisticated planning strategies, particularly given that the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives still do not explicitly address DAO-specific issues and challenges.
The decentralised and fragmented nature of DAOs further complicates applying the separate entity approach. In DAOs, economic “value” generation does not occur through discrete transactions or identifiable functions within specific jurisdictions. Instead, value arises from the organisation’s intrinsic characteristics—an integrated combination of software and digital infrastructure functioning as a unified entity. This renders the separate entity approach inapplicable for DAOs.
In light of these considerations, DAOs lack the traditional features necessary to establish a tax nexus as defined within this framework. From a formal perspective, DAOs do not possess a place of incorporation or a registered office due to their inherently decentralised nature. From a substantive perspective, instead, as DAOs typically do not require employees, physical offices, or retail locations, and therefore lack an identifiable physical presence that could establish jurisdictional tax sovereignty over their income. As a result, under the current international tax system, it is thus challenging to identify a jurisdiction with tax sovereignty over a DAO’s income proceeds.
The idea behind the DAO is to automate all of the agreements necessary to coordinate a group of individuals to accomplish the work of an organisation—in other words, to replace the centralised overhead of a conventional business with code. The core technological component of a DAO—self-executing agreements and automated record-keeping—allows an organisation to function with minimal human managerial discretion, deliberation, and control. Consequently, within the DAO environment, the notion of POEM may be replaced by two core Taoist tenets for daily business operations: (1) action without deliberation and (2) alignment of that action with nature and natural laws.70
Furthermore, even if it were possible to establish a DAO’s tax residence, its decentralised structure creates further complications. Indeed, in a DAO blockchain, it would be impossible to identify an individual with signature authority to fulfil tax compliance obligations, such as submitting tax returns or making tax payments. These obligations must be fulfilled anonymously and automatically, a requirement that current tax systems are not equipped to handle.
Finally, the MAP tool cannot be used to determine a DAO's tax residence without a reference jurisdiction.
Based on these considerations, DAOs face the same issues of entities operating in the metaverse71: Can a jurisdiction exercise tax sovereignty over income earned in cyberspace? To address this question, it is helpful to consider that DAOs are not the first example of entities possessing financial autonomy without legal personality—mutual funds serve as a notable precedent. From a de jure condendo perspective, the taxation of DAOs could be approached through a transparency-based model, similar to that of investment funds. Under this framework, income is calculated at the level of the investment fund but taxed at the level of the fund’s unit holders. Accordingly, it would be necessary to determine whether a tax nexus exists for the natural persons holding DAO tokens.
Based on this approach, the Coalition of Automated Legal Applications (COALA), in its Model Law for Decentralized Autonomous Organizations (DAO), proposed a taxation provision that upholds the principle of transparency.72 It suggests that taxation should occur at the level of token holders, in proportion to their holdings, rather than at the entity level. Indeed, token holders are the only subjects who exhibit a capacity to pay in relation to the income generated by the DAO and are also the only parties clearly anchored within a tax jurisdiction.
From COALA’s perspective, DAOs are not comparable to other taxable persons or entities. Similarly, no taxable nexus can be established through a permanent establishment (PE)73 or agents, as DAOs cannot be attributed to any specific geographic location. This is because the underlying smart contracts operate exclusively in cyberspace and are maintained by a distributed network of participants.
Given this context, it may be inferred that DAOs could appropriately be treated for tax purposes as look-through entities, with taxation arguably more suitable at the level of the token holders, who would accordingly bear the responsibility for meeting their fiscal obligations. However, exclusive taxation at the token holder level may incentivise profit shifting, as token holders are generally identifiable only through pseudonymised wallet addresses that do not establish tax residency. Furthermore, token holders may relocate to low-tax jurisdictions to minimise their tax burden. Considering these challenges, establishing a coordinated framework across tax jurisdictions would be appropriate to reduce opportunities for tax arbitrage.74 This problem can be solved at the OECD level based on due diligence procedures stated in the Crypto-Asset Reporting Framework (CARF) and at the EU level in Directive DAC 8.75
A further challenge arises when a DAO is treated as a tax look-through entity: the in come allocated to token holders is not reported in a tax return and, therefore, has no fiscal effect.76 This prevents income attribution through transparency mechanisms, thereby hindering token holders from fulfilling their tax obligations. As an alternative, token holders could be taxed upon the actual receipt of bonuses, dividends, or tokens and upon the realisation of capital gains derived from the sale of DAO tokens. This approach would grant token holders tax deferral benefits analogous to that enjoyed by shareholders of traditional corporations with respect to accrued but undistributed dividends. Going back to the case of investment funds, it is worth noting, however, that they own companies typically subject to corporate income tax, meaning that the income distributed to unit holders has already been taxed at the corporate level. By contrast, if a DAO is treated as a stateless entity, token holders may receive income that is not subject to taxation in any jurisdiction.
Under these assumptions, a sustainable solution could involve taxing token holders based on income accrued during the tax period using a mark-to-market approach.
Finally, regarding DAOs that have adopted a recognised legal structure and established a registered office in an EU member state in accordance with the MiCA Regulation, such entities are likely to operate as “shell companies”, primarily holding intangible assets or cryptocurrencies. Nevertheless, due to the lack of economic substance characterising their business models, these entities can hardly be deemed tax residents in any other jurisdiction based on the effective place of management principle. Adopting the proposed directive to prevent the misuse of shell entities for tax purposes77 could lead to the transparent taxation of such entities.
5 The Token Holder Tax Nexus
According to the OECD Model Tax Convention on Income and Capital,78 the tax nexus of a person with jurisdiction is connected to the notion of tax residence. Tax residence is usually determined based on the “domicile”, “residence”, or “place of effective management”. However, these criteria were developed with traditional physical spaces in mind and do not adequately capture the nuances of digital environments, such as the complexities introduced by VPN usage and geolocation-masking tools.
For individuals, “domicile” generally implies a place with a lasting connection and intention to remain, which is typically tied to physical presence and long-term residence. Nevertheless, determining domicile becomes challenging in digital environments, as users can mask or obfuscate their physical locations through VPNs and other tools. Similarly, “residence” often defined as the place where a person lives or stays for a significant period, is traditionally linked to physical presence.
When users spend substantial time in virtual environments without disclosing their true location, the concept of residence becomes challenging to apply. In such cases, the ability to mask one’s physical presence in digital spaces undermines traditional methods for determining residence, suggesting a need for tax authorities to adopt more flexible and nuanced approaches. In this context, the due diligence procedure under the Crypto-Asset Reporting Framework (CARF)79 and the EU Directive DAC 880 requires the paying agency to identify Crypto Asset Users and Controlling Persons, as well as to ascertain the relevant tax jurisdictions for reporting and exchange purposes, which may assist in solving this problem. Once tax residence is established, the OECD Double Tax Convention (DTC) can govern the transaction, thereby facilitating cross-border tax coordination with the source country and diminishing the risk of double taxation. Regarding the source jurisdiction, in the case of wrapped DAOs, consideration may be given to the jurisdiction in which the DAO has been incorporated. For income distributed to token holders via Crypto-Asset Service Providers (CASPs) acting as a paying agent, the relevant source jurisdiction is where the CASP is incorporated. However, transactions conducted directly between fully unwrapped DAOs and token holders are excluded from this jurisdictional attribution; these cases will be addressed later in this section.
5.1 The Qualification of Income Perceived by Token Holders
Blockchain technology challenges tax regulations due to its disintermediation feature. This feature allows for pseudonymity,81 which facilitates tax avoidance.
Existing regulatory requirements, such as anti-money laundering (AML)82 rules and the exchange of information frameworks, such as the Crypto-Asset Reporting Framework (CARF) and the EU Directive DAC 8, primarily focus on service providers.83 However, these regulations may not cover certain transactions, such as initial coin offerings (ICOs), block rewards, fortuitous issuances and receipts, because they do not have source jurisdiction. Consequently, tax administrations may struggle to identify the transactions and tax jurisdictions involved.84
For transactions involving crypto-assets across tax jurisdictions, tax treaties aimed at avoiding double taxation of income or capital (Double Tax Treaties—DTTs), allocate taxing rights to specific jurisdictions. However, determining whether a payment is taxable and how and when it should be taxed ultimately depends on each jurisdiction’s domestic tax regulations.
Once a transaction is deemed taxable under domestic law—typically by applying the ability-to-pay principle—it influences how international tax treaties are implemented.85 Although the OECD Model Tax Convention on Income and Capital (MC)86 does not explicitly address crypto-asset transactions, conventional tax rules can be determined by drawing analogies based on each transaction’s unique facts and circumstances.
Several provisions of the OECD MC may be relevant in determining the tax treatment of crypto-asset transactions, including Article 7 on business income, Article 10 on dividends, Article 11 on interest payments, Article 12 on royalties, Article 13 on capital gains, and Article 21 on other incomes.87
5.2 Initial Coin Offering (ICO)
Fundraising through the issuance of cryptocurrencies, commonly known as Initial Coin Offerings (ICOs), has become a prevalent use case that leverages the benefits of the blockchain infrastructure.
In 2019, the European Securities and Markets Authority (ESMA)88 defined Initial Coin Offerings (ICOs). According to the ESMA, ICOs are operations wherein companies, entrepreneurs, developers, or other promoters raise capital for their projects by offering crypto assets to investors. Typically, ICOs are promoted through online platforms and social media channels, accompanied by detailed “white papers”.89
Blockchain technology in ICOs enables direct peer-to-peer transactions between the ICO issuer and investors, resulting in significant cost savings compared to the traditional and resource-intensive process of conducting an Initial Public Offering (IPO).
Since ICO investors may reside in different jurisdictions from where the ICO is conducted, the allocation of taxing rights to income derived from ICOs should be determined under applicable tax treaties. To address this issue, it is necessary to examine the tax treaty classifications of
Capital raised by the ICO issuers.
Returns on invested capital for ICO investors.
Investors earn profits through the sale of crypto assets obtained via ICOs.
5.2.1 Initial Coin Offering (ICO): Issuance of Utility or Equity Token
The MICA Regulation defines utility tokens as a: “type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer”.90 On the other hand, equity tokens91 represent equity in an underlying asset, typically a company's stock. Moreover, the principle of technological neutrality 92 must be considered when determining the tax treaty classification of capital raised through the issuance of utility and equity tokens. This principle suggests that a financial instrument's fundamental characteristics should be considered. These should be its underlying economic substance regardless of whether it is traded and registered with a trusted intermediary or stored on a blockchain. As a result, the tax treatment of a financial instrument should not be solely influenced by its form.93
In general, funds raised from issuing utility tokens may be classified as business income and taxed only in the issuer’s country of residence.94 Instead, equity tokens are characterised by the right to future profit from the funded project rather than the digital asset itself. However, equity tokens do not grant investors actual ownership of the ICO issuer, such as shares.95 Taxation of capital raised through the issuance of equity tokens may be classified as capital gains, based on the commentaries’ literal interpretation,96 which falls within the jurisdiction of the ICO issuer’s residential state,97 if any.
5.2.2 Initial Coin Offering (ICO): Issuance of Governance Token
Advanced jurisdictions in the realm of crypto-asset regulation, such as Switzerland98 and the United States,99 classify tokens, which allow access to a service and give a right to receive a dividend based on the economic results of the issuing company, almost exclusively as securities. Under these circumstances, some may submit that DAO’s security token issued via an ICO should not be deemed “income” for the issuer under domestic tax law, given that the payment obtained from the ICO investor is counterbalanced by the issuer’s responsibility to reimburse the capital to the token holder. In this scenario, there is no net increase in an ICO issuer’s ability to pay or wealth. Therefore, furthering the COALA look-through approach,100 it may not be considered taxable income, not even for the token holder.
In the EU context, particularly under the Markets in Crypto-Assets Regulation (MiCA),101 only those tokens that confer rights akin to financial instruments explicitly excluded from MiCA should be considered outside its scope. In particular, these include shares in companies, securities equivalent to shares, partnerships or other entities, and depositary receipts representing shares, bonds, or other debt instruments.102 For other tokens, the regulatory alternative between classifications such as tokenised financial instruments and crypto assets is not one of “all or nothing” in terms of investor protection. It, instead, involves a choice between two comparable regimes, each based on a disclosure document—a prospectus or a white paper—with corresponding liability resting on the issuer or offeror. The white paper closely resembles the prospectus and adequately supports offering tokens with financial characteristics.
Under this framework, the “governance” function—namely, the ability of token holders to vote on matters related to the development of the blockchain project or the distribution of crypto-assets held by a decentralised organisation—does not qualify a token as a financial instrument in itself.
As has been correctly observed, governance rights are generally not designed to generate claims to cash flows but rather to enable participation in decisions concerning the use and development of the blockchain project.103 Accordingly, the purchaser of a governance token is not acquiring an instrument equivalent to a company share, as there is typically no direct entitlement to the profits of the underlying project, which in many cases may be entirely absent. Therefore, DAO governance tokens do not confer ownership rights in an underlying company. While such tokens may grant a form of “membership” in the blockchain-based platform, the purpose is not to generate future cash flows but to facilitate functional interaction with the blockchain protocol. This functional orientation starkly contrasts the economic model associated with traditional equity shares.104 Therefore, governance tokens—viewed as utility tokens with partial investment functions—may fall within the scope of MiCA.105 In that case, the DAO to make an ICO of governance token should be a legal person within the EU106 (wrapped DAO), thus integrating the formal tax nexus with the jurisdiction of incorporation of the legal entity. Therefore, DAO governance tokens issued via an ICO should be deemed “income” for the issuer (an EU taxpayer) and not for the token holder.
5.2.3 ICO Investors’ Return from Tokens
For investors in the Initial Coin Offering (ICO) market, it is worth contemplating whether returns on equity tokens should be classified as dividends according to Article 10 of the OECD Model Convention (MC). The MC defines dividends as “income from shares, jouissance shares or jouissance rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident”.
Income must be paid by a “company” to qualify as dividends, which is defined in Article 3(1)(a) of the OECD MC as “anybody corporate or any entity that is treated as a body corporate for tax purposes”. If the issuer of tokens can be considered a company, then the dividend notion may apply. According to the commentaries on the OECD MC, the key requirement for classifying income as dividends is whether the investor “effectively shares the risks run by the company, i.e., when repayment depends largely on the success or otherwise of the enterprise’s business”.107 Therefore, if an investor participates in current profits and any potential liquidation proceeds, it can be argued that such instruments share entrepreneurial risk.
In light of the above, the return on investment in equity or governance tokens should not be classified as dividends but as other income108 taxed in the recipient’s country of residence (i.e., the ICO investor), regardless of where the income is earned.
5.3 ICO Investors’ Capital Gains from the Sale of Tokens
The profits derived from the sale of tokens can be classified as capital gains109 under Article 13(5) of the OECD Model, which implies that they will only be taxed in the recipient's jurisdiction.
5.4 Token Issued for the Remuneration of the Employee
According to Article 15 of the OECD Model Convention (MC), employment income comprises monetary and non-monetary benefits, including crypto-asset token receipts from employment.110 The OECD Commentary on Article 15 emphasises the importance of establishing a causal relationship between employment and income received, particularly in determining the source state of such income.
As already pointed out, a DAO must be wrapped in a legal entity to enter in an employment contract. Therefore, the jurisdiction of the source coincides with the jurisdiction of the registered office of the latter legal entity.111
For the principal, the employee’s income should be recognised at the market value of the tokens awarded when the services are provided, adhering to the principles of a barter transaction. Employees are not required to recognise additional income in cases where there is a change in the token value between the time the services are provided and the payment date, provided that the number of tokens received represents the actual substance of the agreement. No additional tokens were granted or forfeited. Any change in value will have tax implications upon realisation, based on the difference between the market value on the transfer date and the market value on the date the services were provided.
Moreover, if tokens are transferred with restrictions on disposal or retained by the principal until certain conditions are met, principles applied to restricted employee stock options may be relevant. However, because the model conventions do not address timing considerations, domestic legislation should state when employment income is taxed, reflecting the market value of the tokens on that date rather than the date and value at which the tokens were granted. This approach aims to achieve fairness for transactions that have similar purposes.112
6 DAO and Exchange of Information
For anti-money laundering (AML) compliance,113 the regulatory framework encompasses both virtual currency exchange service providers and wallet service providers facilitating virtual-to-fiat currency conversions. This framework enables competent authorities to monitor virtual currency usage via obligated entities. To mitigate anonymity risks, national financial intelligence units must be capable of associating virtual currency addresses with the identities of currency owners. With this aim, the European Banking Authority (EBA) has recently updated specific risk factors for crypto-assets and crypto-asset service providers (CASPs), establishing both simplified and enhanced customer due diligence measures.114
Financial intermediaries managing overseas assets on behalf of clients must report holdings to the relevant tax authorities under two primary frameworks: the Foreign Account Tax Compliance Act (FATCA) for U.S. taxpayers and the Common Reporting Standard (CRS) for residents of other OECD countries.
FATCA aims to prevent tax evasion by U.S. taxpayers holding financial assets in non-U.S. Foreign Financial Institutions (FFIs).115 These institutions must identify U.S. persons owning financial assets and report them to the Internal Revenue Service (IRS) through their jurisdictional tax authority. Non-compliant FFIs face a 30% withholding tax on payments made to U.S. clients and counterparties.
Notably, crypto-assets, including DAO-issued tokens, are currently excluded from FATCA’s list of reportable accounts and assets.116 From a U.S. regulatory perspective, the IRS classifies cryptocurrencies as intangible assets rather than currencies.117 However, while a similar exclusion applies under the Foreign Bank and Financial Account Reporting (FBAR)118 regime, crypto-assets held in hybrid accounts containing both legal (fiat) currencies and crypto-assets remain subject to reporting requirements. This nuanced approach exemplifies the evolving nature of the regulatory landscape, with potential reforms anticipated under the current U.S. administration.
Again, the executive order that U.S. President Donald Trump signed on 23 January may change this regulatory framework.
The CRS, developed by the OECD in 2014, establishes protocols for the automatic exchange of information (AEOI) regarding financial accounts between global tax authorities. It enhances cooperation and minimises opportunities for offshore tax evasion by requiring financial institutions—such as depository institutions, custodial institutions, investment entities, and specified insurance companies—to adhere to strict due diligence and reporting rules.
While the CRS applies to traditional financial assets and legal (fiat) currencies, crypto assets are outside its scope. Furthermore, crypto assets may be held directly by individuals in cold wallets or through crypto asset exchanges that do not have reporting obligations under the CRS, thereby limiting tax administrations’ visibility into tax-relevant transactions involving or holding crypto assets.119
To address this regulatory gap, in August 2022, the OECD’s Committee on Fiscal Affairs approved the Crypto-Asset Reporting Framework (CARF),120 which aimed to provide standard guidelines for due diligence rules and procedures, stated “… for the automatic exchange of tax-relevant information on Crypto-Assets and has been developed to address the rapid development and growth of the Crypto-Asset market and to ensure that recent gains in global tax transparency are not gradually eroded”.121
Following CARF’s approval, the European Commission122 undertook to update the scope of the Administrative Cooperation Directive (DAC) to mitigate tax avoidance risks associated with crypto-assets and their users. This initiative led to the eighth amendment to the DAC regime (DAC8),123 approved on 17 October 2023 and set to take effect from 1 January 2026, which extends reporting obligations to all crypto-asset service providers (CASPs) regarding transactions conducted by their EU-based customers.124 This measure enhances the ability of EU tax authorities to monitor and verify crypto-asset revenues and their tax implications.125
DAC8 aligns with the tax transparency objectives of the CARF recommendations and builds upon the regulatory taxonomy established by the Markets in Crypto-assets Regulation (MiCA) by introducing obligations for “…reporting and automatic exchange of information in the detail required for direct tax purposes”.126 Notably, DAC8’s scope extends beyond OECD CARF standards to include non-EU operators with EU-based users. To access the EU market, these operators must register in a Member State and comply with the prescribed reporting rules. The DAC 8 information exchange operates through a two-step process. Firstly, service providers report their users’ specific cryptocurrency transactions to the tax authorities. Secondly, tax authorities across Member States exchange this information, which includes cross-border transactions,127 to enhance regulatory oversight and tax compliance.
Moreover, DAC8 ensures that such information can be used for purposes other than direct taxation, such as assessing, administering, and enforcing value-added tax (VAT), other indirect taxes, customs duties, anti-money laundering, and countering the financing of terrorism.128
For the sake of completeness, it should be noted that peer-to-peer (or person to person).129 transactions between self-hosted wallets and decentralised exchanges (DEXs) fall outside the scope of the DAC8 rules, as they are not included in the definition of a reportable transaction.130
Specifically, a DEX, rather than being a centralised entity that matches orders and holds custody of funds, operates through a set of smart contracts that facilitate direct, peer-to-peer cryptocurrency swaps.131
As a result, transactions involving Decentralized Autonomous Organizations (DAOs) may fall outside the scope of DAC8. Nevertheless, for anti-money laundering (AML) purposes, originator and beneficiary information of a transaction must be exchanged between crypto-asset service providers (CASPs), or between a CASP and a self-hosted wallet, for transactions exceeding USD 1,000. This requirement aims to ensure the traceability of virtual asset transfers under the so-called “travel rule”.132
7 DAO and Indirect Taxation
In general, the supply of goods and services that are (i) provided for consideration and (ii) delivered by an entrepreneur or self-employed person are subject to Value Added Tax (VAT).133 Based on this subjective legal assumption, fully decentralised algorithmic DAOs are excluded from VAT liability, as they do not qualify as businesses or self-employed individuals.
However, if a DAO qualifies as a CASP providing services for cryptocurrencies within the EU market, is required to establish a corporate structure in a member state under MICA Regulation, thus creating a tax nexus with that jurisdiction, which then acquires tax sovereignty over gains derived from this business. Consequently, the question arises as to whether the services provided by a DAO fall within the scope of VAT and, if so, what VAT rate is applicable and which invoicing method should be adopted.
Regarding tokens, the VAT treatment of crypto-assets requires a case-by-case assessment, considering their economic function or use, in line with the “technology neutrality” principle established by the MiCA Regulation.134
This principle extends to VAT considerations, requiring an evaluation of each transaction to ascertain its true nature, practical function, and actual utilisation, irrespective of the label assigned by the issuer for commercial purposes.135 In this regard, the clarifications provided by the Court of Justice of the European Union (CJEU).136 in the Hedqvist judgement remain authoritative. Accordingly, when the sole purpose of a crypto-activity is to serve as a means of payment, cryptocurrency transactions qualify as VAT-exempt.137 Thus, the following financial transactions, when conducted for consideration, are VAT-exempt138:
The exchange between traditional and virtual currencies, as well as exchanges between virtual currencies.
Mining activities involving virtual currencies, where remuneration is received through fees charged by the miner.
Fees for digital wallet services.
Staking activities.
Consistent with the functional approach outlined above, these exemptions pertain to tokens that primarily function as a means of payment or virtual currency. Additionally, the exemption framework extends to security tokens that serve as investment instruments, such as shares, bonds, and other securities, along with their associated service.139
Utility tokens also require a case-by-case assessment to determine whether they serve as vouchers rather than payment instruments.
From a residual perspective, it is useful to highlight the VAT notion of “Electronically supplied services” which include “services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology”.140 Consequently, the provision of “Electronically supplied services” for consideration by a “wrapped DAO” established in the EU is tax-relevant for VAT purposes. Generally, the supply of services between businesses (B2B services) is, in principle, taxed at the customer’s place of establishment. In contrast, services supplied to private individuals (B2C services) are taxed at the supplier’s place of establishment.141
Conversely, the provision of “Electronically supplied services” by an unwrapped DAO is not relevant for VAT purposes. In this regard, it is useful to reference the German case law on VAT liability for renting virtual land in the Metaverse. In August 2019, the Regional Fiscal Court in Cologne issued a judgement stating that renting virtual land is taxable for VAT purposes.142 However, in November 2021, on appeal, the Federal Finance Court of Germany (Bundesfinanzhof [BFH])143 fundamentally deviated from this decision, stating that anything within a game lies outside the real world and the economic sphere where VAT applies. The BFH’s judgement may lead to the conclusion that everything occurring in the virtual game world is not subject to VAT. Let us refer to it as the “what happens in Vegas, stays in Vegas” approach.144 Accordingly, the same reasoning should be applied to unwrapped DAOs.
8 DAO as a Tool for Tax Authorities
In a decentralised, crypto asset-based economy, DAOs could play a pivotal role in serving as a technical umbrella for integrating national tax authorities, taxpayers, and intermediaries into a cooperative, cross-border tax platform. This would facilitate tax collection through a transaction-based mechanism enabled by smart contracts. These contracts ensure automatic execution and could support the imposition of indirect taxes, such as value-added tax and transfer pricing rules, which depend on the verifiable, cross-border transmission of tax-relevant data. This approach aligns with the DAO’s foundational principle of community governance and resonates with the OECD’s horizontal monitoring framework, promoting cooperative rather than authoritarian tax enforcement.
Smart contracts could automate tax payments directly at the transactional level, enhancing efficiency and compliance. However, successful implementation hinges on the availability of accurate underlying data and a robust technical infrastructure.
To calculate taxes effectively, a dual on-chain/off-chain architecture is required. Blockchain would provide immutable documentation of transaction data, ensuring data integrity and transparency, while tax computation would occur off-chain using artificial intelligence (AI).
Although the adoption of such a system would entail substantial implementation and maintenance costs, it offers long-term cost-efficiency by addressing the current fragmentation in tax systems. A standardised, cross-border digital infrastructure would reduce administrative burdens and enhance the capacity to combat tax evasion. Thus, the integration of DAOs, blockchain, and AI presents a promising framework for modernising international tax collection in the digital economy.145
9 Conclusions
Lex Cryptographia facilitates the creation of autonomous and decentralised digital entities, which U.S. case law has classified as “unrecognised associations”. These entities may exhibit a degree of financial autonomy but lack legal personality. As a consequence of this classification, governance token holders entitled to vote may bear unlimited liability.
From a tax perspective, a DAO is typically regarded as a stateless entity unless it is incorporated into a special purpose vehicle (SPV) to satisfy regulatory obligations associated with its operations (e.g., when functioning as a Crypto-Asset Service Provider, or CASP). In such cases, the sole connecting factor for determining the entity’s tax residence is the formal criterion, whereby the SPV is deemed resident in the jurisdiction in which it is incorporated and under the legal framework pursuant to which it was established.
Moreover, the purely digital nature of a DAO’s operations fails to meet the substantive requirements outlined by the OECD for defining the Effective Place of Management (EPoM)—a concept traditionally applicable to physical, brick-and-mortar enterprises. Nor is recourse to the Mutual Agreement Procedure (MAP) sufficient to resolve the fiscal ambiguity surrounding DAOs. Given these challenges, and in the absence of specific regulation, unwrapped DAOs may currently operate as mechanisms that facilitate tax avoidance.
To mitigate this risk, the Coalition of Automated Legal Applications (COALA), through its Model Law for Decentralised Autonomous Organisations (DAO), proposed a taxation provision that upholds the principle of transparency. This provision mirrors the treatment of investment funds, which possess financial autonomy without legal personality—a status already recognised within the tax domain and, therefore, potentially suitable for adoption in the context of DAOs. Under this approach, taxation would be imposed primarily at the level of the token holder, proportionate to their token holdings, rather than at the entity level.
Unlike investment funds, however, DAOs are not just recognised as tax entities and cannot determine income to be allocated distributable to token holders. Consequently, token holders may be taxed upon the actual receipt of bonuses, dividends, or tokens and upon the realisation of capital gains from the sale of DAO tokens. This framework affords token holders a tax deferral benefit akin to that shareholders enjoy concerning accrued but undistributed dividends.
Importantly, while companies owned by investment funds are subject to corporate tax—implying that income distributed to fund unit holders has already been taxed at source—DAOs considered stateless entities may avoid such taxation. Consequently, income received by token holders might not be liable to corporate tax in any jurisdiction. Under this premise, a sustainable approach would involve taxing token holders on income accrued during the tax period, determined through a mark-to-market method based on the market value of the tokens.
Based on the observations presented in this essay, it can be concluded that for DAOs that have adopted a corporate structure (i.e., wrapped DAOs), the current OECD-developed framework of international taxation remains applicable to the allocation of taxing rights. Instead, the OECD framework does not apply to fully decentralised DAOS, as the absence of a source jurisdiction precludes the emergence of double taxation concerns. As a result, the taxation of income flows received by token holders falls within the purview of domestic tax law in the jurisdiction of the token holder's residence.
It may be argued that the anonymity of token holders renders such an approach impractical. However, obligations arising under the Anti-Money Laundering Directives (AML) and the Directive on Administrative Cooperation (DAC8), which apply to exchanges and CASPs, enable the identification of token holders for tax purposes.
Furthermore, DAOs could serve as instruments for tax authorities to automate tax collection at the transactional level, thereby enhancing compliance and administrative efficiency. However, the effectiveness of such an approach would depend on the availability of accurate underlying data and the establishment of a robust blockchain infrastructure, with tax computation occurring off-chain through artificial intelligence (AI).
From the indirect taxation perspective, the actual consumption of data within the Distributed Ledger Technology (DLT) ecosystem—quantified and processed by data controllers under the GDPR regulatory framework—could serve as the basis for a “digital excise tax”. In this context, the data controller could act as the designated tax representative.
Accordingly, the time is ripe for DAOs to transition from the informal framework of Lex Cryptographia to a formal regulatory structure that ensures a level playing field for all stakeholders. In this regard, the recent Letta Report on European competitiveness146 has advocated the creation of a “28th jurisdiction”: an EU-wide legal framework tailored to young and innovative enterprises. This framework would enable such entities to operate under a harmonised set of EU rules, circumventing the complexities of 27 disparate legal regimes—marking a significant regulatory milestone. A parallel proposal for a 28th legal regime aimed at streamlining regulatory compliance and lowering the cost of failure—including in areas such as corporate, insolvency, labour, and tax law—has recently been adopted by the European Commission.147
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Article 5, EU Directive 2924/1760, Corporate Sustainability Due Diligence Directive (CSDD) while those for the “Fundamental Rights Impact Assessment for High-Risk AI Systems” are dictated by Article 27, Regulation 2024/1689 (AI Act).
Under Art. 2 of the EU Regulation 2022/858 on a pilot regime for market infrastructures based on Distributed Ledger Technology DLT is defined as: “a technology that enables the operation and use of distributed ledgers” (No. 1), while “distributed ledger” is defined as “an information repository that keeps records of transactions and that is shared across, and synchronised between, a set of DLT network nodes using a consensus mechanism”.
Giedre Lideikyte Huber, “Philanthropy and Taxation: Swiss Legal Framework” Expert Focus 2018, Geneva (university publication) https://www.unige.ch/philanthropie/download_file/view/125/458 accessed 21 September 2025, especially Art. 56(g) LIFD/DBG and comparable cantonal norms for exemption from federal, cantonal and communal income tax for foundations with public interest / charitable purposes
The DAO LLC of Wyoming (United States), the Blockchain-Based Limited Liability Company (BBLLC) of Vermont (United States), the LAO of Delaware (United States). In Europe, the Decentralized Autonomous Association—DAA (Switzerland) as well as a special form in Malta with the “innovative technology arrangement” are relevant for establishing a DINO. Additionally, the United Kingdom is currently exploring the possibility of creating a new legal framework specifically for DAOs and has initiated a Call for Evidence—Pre-consultation Phase (https://lawcom.gov.uk/project/decentralised-autonomous-organisations-daos/ (accessed 11 April 2025). Under English proposal, DAOs should be classified as a partnership (see Müller [5]).
For example, the Ethereum Foundation, registered in Switzerland, supports the Ethereum project, while commercial companies like ConsenSys develop products and services (e.g., the MetaMask wallet) to facilitate Ethereum’s adoption.
In US law, a futures commission merchant (FCM) is an individual or organisation engaged in the business of soliciting or accepting orders to buy or sell futures or futures options in exchange for the payment of money (commission) or other assets from customers. MMFs are subject to the Commodity Exchange Act (CEA) and the rules and regulations issued by the Office of the Comptroller of the Currency (OCC) as well as the rules and regulations issued by the Commodity Futures Trade Commission (CFTC), the National Futures Association (NFA). In Europe, MMFs are analogous to futures market clearing members. (See Chen [17]).
Concerning the European Data Strategy, The EU Regulation No. 2023/2854 settles the right of access to data produced by Internet of Things (IoT) to respond to the needs of the digital economy and to eliminate obstacles to the smooth functioning of the internal data market, to establish “a harmonized framework specifying who has the right to use data from a related product or service, under what conditions and on what basis” (see Recital n. 3).
Pursuant to Art. 3, Num. 15), Reg. (EU) 2023/1114, a “cryptocurrency service provider” is defined as “a legal person or other undertaking whose occupation or business consists in the provision of one or more cryptocurrency services to customers on a professional basis and which is authorised to provide cryptocurrency services in accordance with Article 59”.
The 1923 Report illustrated this principle through the metaphor of oranges on trees in California: wealth is generated through multiple stages, including harvesting, packaging, transportation, and final sale. The value of the oranges is realized only when they reach consumers, highlighting that each stage contributes to wealth creation and, consequently, to the allocation of taxing rights.
The main MLI provision dealing with dual tax residence of companies can be found in article 4 paragraph 1 which provides as follows: “Where by reason of the provisions of a Covered Tax Agreement a person other than an individual is a resident of more than one Contracting Jurisdiction, the competent authorities of the Contracting Jurisdictions shall endeavour to determine by mutual agreement the Contracting Jurisdiction of which such person shall be deemed to be a resident for the purposes of the Covered Tax Agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by the Covered Tax Agreement except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting Jurisdictions”.
Proposal for a COUNCIL DIRECTIVE laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU COM(2021) 565 final {SEC(2021) 565 final}.
S. Parsons: “Taxing Crypto-Asset Transactions”—IBFD Doctoral Series Num. 66, paragraph 7.2.5.1.: “A taxpayer therefore knows very little about the counterparty's identity to a transaction. The proposed measures focus on restoring taxing rights eroded by the digitalised economy in market jurisdictions. Its implementation therefore presupposes that the taxpayer is able to determine at least the location, if not the identity, of counterparties in a reliable manner (…) Pseudonymity is a central ideological and pragmatic proposition of blockchain technology. It may therefore be impossible for taxpayers to identify the market jurisdictions in which they are transacting. While regulatory requirements that crypto-asset exchanges obtain personal information from parties may go some way towards addressing this issue, those requirements focus primarily on the regulatory and tax compliance of the transacting party. Using the information collected to support the tax compliance of a counterparty would take these measures a significant step further. In addition, cryptoasset exchanges are not an essential element of any particular transaction, and play no role in a number of transactions, perhaps most notably those of transaction validation. Requirements imposed on exchanges may therefore at best only partially address this challenge”.
“… if a country taxes the sale of a token under its domestic law, the relevant treaty provisions, such as Article 13 on capital gains, may guide how the transaction is taxed at the cross-border level”. Cipollini [26].
“In order to ensure their protection, prospective retail holders of crypto-assets should be informed of the characteristics, functions and risks of the crypto-assets that they intend to purchase. When making an offer to the public of crypto-assets other than asset-referenced tokens or e-money tokens or when seeking admission to trading of such crypto-assets in the Union, offerors or persons seeking admission to trading should draw up, notify their competent authority and publish an information document containing mandatory disclosures (‘a crypto-asset white paper’)”. (Recital 24 of Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets MICA). Article 6 of the same Regulation rules the “Content and form of the crypto-asset white paper”.
“Tokenized equity refers to the creation and issuance of digital tokens or "coins" that represent equity shares in a corporation or organization” (Frankenfield [32]).
“Union legislative acts on financial services should be guided by the principles of ‘same activities, same risks, same rules’ and of technology neutrality. Therefore, crypto assets that fall under existing Union legislative acts on financial services should remain regulated under the existing regulatory framework, regardless of the technology used for their issuance or their transfer, rather than this Regulation”. (Recital 9 of Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto assets).
Article 13(5) of the OECD MC classifies as capital gains: “… from the alienation of any property, other than that referred to in paragraphs 1 (immovable property), 2 (movable property), 3 (ships or aircraft) and 4 (shares or comparable interests), shall be taxable only in the Contracting State of which the alienator is a resident”. In this regard, the OECD Commentary precise the words’ alienation of property’ are: “used to cover in particular capital gains resulting from the sale or exchange of property and also from … the sale of a right, the gift and even the passing of property on death”.
FINMA, Guidelines, supra note 53, at 5 (“If a utility token additionally or only has an investment purpose at the point of issue, FINMA will treat such tokens as securities (i.e. in the same way as asset tokens)”.
“These governance tokens likely will help keep the smart contract developers in check by preventing them from taking actions that would go against the smart contract’s users. At the same time, holders of the governance tokens can take ready action to account for regulatory requirements, should they arise, or complex technical or organizational issues that may emerge over time”. Wright [35].
Xiong, X.—Huth, M.—Knottenbelt, W.: REGKYC: Supporting Privacy and Compliance Enforcement for KYC in Blockchains. In https://eprint.iacr.org/2025/579 (accessed 14 april 2025).
Reportable accounts/assets include financial accounts maintained by a foreign financial institution and include the following foreign financial assets if they are held for investment purposes and not in an account maintained by a financial institution- Shares or securities issued by an entity that is not a U.S. person, including shares or securities issued by an entity established under the laws of the United States.- Any equity interest in a foreign entity.- Any financial instrument or contract that has an issuer or counterparty that is not a U.S. person, including a financial contract issued by, or an entity organised under the laws of, a U.S. possession. (U.S. Treasury Regulations -26 CFR § 1.1471-5(b)).
U.S. persons maintain overseas financial accounts for a variety of legitimate reasons, including convenience and access. They must file Reports of Foreign Bank and Financial Accounts (FBAR) because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is also a tool used by the U.S. government to identify persons who may be using foreign financial accounts to circumvent U.S. law. The government can use FBAR information to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad. (available at https://www.irs.gov/newsroom/how-to-report-foreign-bank-and-financial-accounts#:~:text=The%20FBAR%20is%20also%20a,income%20maintained%20or%20generated%20abroad , accessed 14 April 2025)
European Commission, Communication from the Commission to the European Parliament and the Council—An action plan for fair and simple taxation to support the recovery strategy, Brussels, 15.7.2020 COM(2020) 312 final.
European Commission. (2022). Proposal for a Council Directive amending Directive 2011/16/EU on administrative procedures. cooperation in the field of taxation, COM(2022) 707 final.
European Commission. (2022). Executive Summary Of The Impact Assessment Report: Initiative to strengthen existing rules and broaden the framework for exchange of information in the field of taxation to include crypto-assets, (2022) 402 final. 1.
European Commission. (2022). Impact Assessment Report: Initiative to strengthen existing rules and broaden the framework for exchange of information in the area of taxation to include crypto-assets, SWD(2022) 401 final. 8.
In 2019, the Financial Action Task Force (FATF) expanded its anti-money laundering and counter-terrorist financing (AML/CFT) measures to encompass virtual assets and virtual asset service providers (VASPs), the measure known as Recommendation 16 (the Travel Rule). To prevent criminal and terrorist exploitation of the virtual asset sector Recommendation 16 serves as a set of rules VASPs must follow when conducting virtual asset transfers. According to Recommendation 16, VASPs must collect, verify and exchange specific customer information before a virtual asset transfer can occur. Moreover, it guides how VASPs are to transact with self-hosted wallets (See FATF [41]). Art. 14, Section 5 and 16, Section 2 of Regulation (EU) 2023/1113 of 31 May 2023 on information accompanying transfers and certain crypto-assets—TFR) has implemented the FATF Travel Rule Within the EU.
Article 10(1)(4), Presidential Decree No. 633/72. In this regard, the ECJ (Judgment 19 July 2012, C-44/11, Deutsche Bank case) excluded from the scope of the exemption the services of “safekeeping and administration of securities as well as the individual portfolio management service”, which therefore remain subject to VAT at the ordinary rate.
Art. 7, par.1, Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax (recast) (OJ L 77, 23.3.2011, p. 1).
EU Commission, A Competitiveness Compass for the EU, Brussels, 29.1.2025 COM(2025) 30 final.
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