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Crowdfunding, Cryptocurrency, and ICO's 2018


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Block chain, bitcoin and other cryptocurrencies, and ICOs have dominated recent headlines. While excitement continues to grow around this rapidly expanding space, there still seems to be a lot of unanswered questions. Roger Royse, founder of the Royse Law Firm, discusses the legal issues that may determine the future of these emerging technologies.

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Crowdfunding, Cryptocurrency, and ICO's 2018

  1. 1. CROWDFUNDING/CRYPTO/ICOS 2018 IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication, including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein. Roger Royse Royse Law Firm, PC Skype: roger.royse Twitter @rroyse00 CROWDFUNDING/CRYPTO/ICOS 2018
  2. 2. Disclaimer No information contained in this presentation is to be construed as legal advice. No information contained in this presentation is intended or related to any particular factual situation. Nothing herein forms an attorney-client relationship. If legal advice or other expert assistance is required, the services of a competent professional should be sought.
  3. 3. • Improves access to capital markets for emerging growth companies o Relaxes reporting and disclosure requirements for public companies with less than $1 billion in gross revenues • Crowdfunding/Crowdfinancing o Exemption from registration for issuance of securities o Securities issued through crowdfunding do not count towards registration threshold o Possible Problems  Fraud  Costs  Unsophisticated nature of investors • Increases 500 shareholder registration threshold • General solicitation in Rule 506 offerings, provided that all investors are accredited JOBS Act Overview
  4. 4. • Crowdfunding (Title III of the JOBS Act) o Allows companies to raise a limited amount of funds from the general public (Effective as of May 16, 2016) o Investment must be through an intermediary broker or funding portal • General Solicitation (Title II of the JOBS Act) o The SEC has extended the exemption for private offerings under Rule 506 to allow for general solicitation providing certain requirements are satisfied o Can only issue securities to accredited investors and there are additional filing requirements • New Regulation A, nicknamed “Regulation A+” (Title IV of the JOBS Act) o Preempts state registration, allow for what some call a “mini-IPO” JOBS Act – Key Provisions
  5. 5. Exemption from Registration • The private company issuer (aggregated with predecessors and companies under common control) may sell up to $1.07 million of securities in a 12-month period [adjusted for inflation] • Individual investments in all crowdfunding issuers in a 12-month period are limited to: o If either their annual income or net worth is less than $107,000, then the greater of:  $2,200 or  5 percent of the lesser of their annual income or net worth o If both their annual income and net worth are equal to or more than $107,000, then  10 percent of the lesser of their annual income or net worth (up to a maximum of $107,000) o Issuer may rely on intermediary’s calculation of investor limits, unless issuer knew it was or would be wrong • Process is likely to prove expensive and overly burdensome • Effective as of May 16th, 2016 Crowdfunding
  6. 6. • Investment must be through the online platform of an “intermediary” broker or funding portal o Intermediary must register with the SEC and FINRA o Issuer can only use one intermediary in any concurrent offerings based off of crowdfunding exemption; however, multiple crowdfunding offerings may be conducted using different portals so long as the aggregate amount in the same 12-month period does not exceed the 1.07 million limit o Many limitations on what entities can be intermediaries (e.g., must be good actor) o Stringent limitations on having financial interests in issuers using platform o Only allow issuers if reasonable to believe they are compliant, and there is no reasonable basis to think there is a potential for fraud o Cannot accept commitment from investor until investor has account with platform, and platform provides needed information o Must make sure investors aren’t exceeding their caps, and that they acknowledge and understand the risks o Must provide communication services between investors and issuer o Many other requirements and filings Crowdfunding
  7. 7. • No integration with non-crowdfunding offers o Be careful to ensure crowdfunding communications do not go to wrong offerees who are not supposed to receive them (e.g., Rule 506(c) offerees) • Limits on advertising and compensation for promoters o Limited to brief notice that directs investors to the intermediary’s platform o Issuer must take reasonable steps to ensure that any promoter clearly discloses compensation for promotional communications • Post fundraising o Securities cannot be resold within 12 months (unless to an accredited investor) o Private right of action for material misstatements/personal liability Crowdfunding
  8. 8. • Issuer disclosure requirements o File basic business, offering details in Form C with SEC; then display publicly o Amend Form C if any material changes occur via Form C/A o File updates (Form C-U) with SEC within five days of certain milestones (such as enough commitments, offers, or closing of issuance) o File financial statements meeting GAAP, and GAAS or PCAOB if applicable  Audited if offering exceeds $500,000, except first time issuers need only have independent CPA review  Reviewed by an independent CPA if offering is between $100,000 and $500,000  If $100,000 or less, certain information from tax forms and CEO-certified financials  In any event, if more trustworthy financials available than are required (i.e., if audited or CPA-reviewed are available), use those instead o File annual SEC reports via Form C-AR o File Form C-TR to terminate annual reporting obligations in five days of eligibility (e.g., became Exchange Act issuer, has fewer than 300 recorded holders or not more than $10 million total assets) Crowdfunding
  9. 9. Proposed Changes • The Small Business Capital Formation Enhancement Act (H.R. 4168) • The Supporting America’s Innovators Act (H.R. 4854) • The Fix Crowdfunding Act (H.R. 4855) • The Fair Investment Opportunities for Professional Experts Act (H.R. 2187) • Crowdfunding Enhancement Act (S. 3453)  Allow Testing the Waters  Raise the Funding Cap From $1M to $5M  Clear Funding Portal’s Liability  Remove the current prohibition on crowdfunding by SPVs  Revise SEC registration requirements to exempt securities issued in crowdfunding transactions Crowdfunding
  10. 10. Data of 2016 • As of December 31, 2016, 169 companies had filed a Form C to offer securities under the Title III exemption. • The average minimum raise sought is $100,000 and the average maximum raise is $647,000. • The average time period has been between four and six months. • Among the issuers, Delaware entities accounted for nearly half (81) of all filers, with California (21) and Texas (10) entities a distant second and third, respectively. • Compliance rate is very low - 15%.  By January 9, 2017, only 39 issuers had filed a Form C-U. Among those 39 filings, only 14 were filed within the five business day time period, representing a 15 percent compliance rate. Source: Drinker Biddle Crowdfunding Report Crowdfunding
  11. 11. Data of 2016 There are 21 registered funding portals as of December 2016. Wefunder portal continues to hold a majority of the market share, with 70 of the year’s 169 offerings hosted on its platform. The StartEngine portal maintained the second spot, hosting 29 offerings in 2016. Source: Drinker Biddle Crowdfunding Report 41.7% 17.2% 41.1% 2016 Funding Portal Market Share Wefunder StartEngine Others 11 Crowdfunding
  12. 12. Data of 2016 Source: Drinker Biddle Crowdfunding Report Crowdfunding
  13. 13. Points for Consideration • Crowdsourcing through donations (e.g., IndieGoGo and Kickstarter) may be cheaper and easier, and does not require the company to issue equity • Advertising terms of offer is restricted o Issuer can only direct investors to broker/funding portal • Costs of disclosure and reporting (15%) • Use of intermediary • Risk of fraud • High number of unsophisticated investors o Fiduciary duties to all investors o Could be a concern for VCs in future fundraisings • Liability o Rule 10b-5 liability o New Section 4A(c) liability for issuer, its officers and directors and anyone “selling” including promoting the offering Crowdfunding
  14. 14. • Rule 506 now provides for two different types of private offering: o Rule 506(b) is essentially the same as the old Rule 506, providing an exemption for non-public offerings but prohibiting general solicitation o Rule 506(c) is a new exemption that allows general solicitation, but with certain restrictions and filing requirements • Rule 506(c): issuers can offer securities through means of general solicitation as long as: o All purchasers are accredited investors; and o The issuer takes “reasonable steps” to verify the purchasers’ accredited investor status General Solicitation
  15. 15. • A determination of “reasonable steps” requires consideration of: o Nature of the purchaser; o Amount of information the issuer has about the purchaser; and o Nature of the offering, terms, amount, and method of solicitation • The SEC has provided a non-exhaustive list of methods to verify status: o Review IRS forms that report income e.g. Form W-2 or K-1; o Review documents for asset details e.g. bank or brokerage statements; or o Obtain confirmation from CPA, lawyer, SEC-registered investment advisor, or broker-dealer that reasonable steps were taken to verify accredited investor status General Solicitation
  16. 16. • Form D Filing o Under the current rules only one Form D filing is required (within 15 days of the first sale of securities) o Under the Proposed Rules a Rule 506(c) issuer must file: Advance Form D at least 15 days prior to the first use of general solicitation materials in an offering; Full Form D within 15 days of the first sale of securities; and Form D Closing Amendment within 30 days of the termination of the offering o Rule 506(b) issuers must file the Full Form D and Closing Amendment General Solicitation – Proposed Rules
  17. 17. • Filing of General Solicitation Materials o Proposed Rule 510T requires 506(c) issuers to electronically submit general solicitation materials to the SEC o Current intention is for this requirement to expire within 2 years o Submissions would not be made publically available • Legends – all general solicitation materials will need a legend that states the following: o The securities may only be sold to accredited investors; o The securities are offered under an exemption to the Securities Act and therefore certain disclosure requirements do not apply; o The SEC has not given approval to the securities, terms of the offering, or the accuracy of the offering materials; o The securities are subject to legal restrictions on resale; and o Investing in securities involves risk and investors should be able to bear a loss General Solicitation – Proposed Rules
  18. 18. • Under what is now Rule 506(b), issuers are prohibited from making general solicitations o The emergence of internet funding websites creates some potential problems for issuers relying on Rule 506(b) • A communication that is publically available (e.g. on a website that is not password protected) is a general solicitation o This can be avoided by only providing access to accredited investors • Direct communications to persons with whom the issuer or its broker has a “pre-existing, substantive relationship” are not considered general solicitations o However, the SEC believes that such a pre-existing relationship usually only exists where the communication is from a registered broker-dealer Private Offerings Under Rule 506(b)
  19. 19. • In 2013, the SEC released two no-action letters confirming that certain fund- raising websites did not need to register as broker-dealers: o AngelList LLC Matches investors with companies Exclusively available to accredited investors No transaction-based compensation o FundersClub Inc Posts details of companies to its website after they pass initial due diligence Exclusively available to accredited investors No transaction-based compensation • In 2012, the SEC charged some companies operating secondary markets for private stock o SecondMarket escaped unscathed which it puts down to its transparency, rigid accreditation process, and strict adherence to rules on general solicitation SEC No Action Letters
  20. 20. • The proposed regulations pose a number of potential problems to pitch competitions, for example: o The pitch could be considered a general solicitation and therefore any presentation materials would need to be filed with the SEC o If the pitch is amended after feedback from judges then the new presentation would need to be filed with the SEC before the next pitch • Issuers that break the rules are subject to a one year penalty o Very onerous and essentially a death penalty for early stage companies Pitch Competitions
  21. 21. • SEC has proposed updates to Rule 147 with new exemption, and to expand Rule 504 of Regulation D to have higher limits (up to $5M from $1M), to facilitate the use of these new state laws • The North American Security Administrator Association (NASAA) has released a model rule for states to use in implementing crowdfunding • As of late 2016, 32 states have finalized legislation granting crowdfunding exemptions o Others are in the final leg of passing the legislation o Others yet in the early stages of considering legislation o A few have rejected crowdfunding legislation Intrastate Crowdfunding
  22. 22. • Per NASAA, these exemptions from state securities rules tend to involve: o Qualifying for the federal intrastate offering exemption from Federal registration (if intrastate offer to intrastate buyers, Federal securities rules do not apply) o Wide ranging offering caps ($100k-$5M over 12 months) o Wide-ranging investment limits ($100-$100k, with increase for accredited investors) o Internet-based offerings and platforms are increasingly important to new exemptions, as are broker-dealers o Registration-lite and periodic reporting-lite Intrastate Crowdfunding
  23. 23. • The oldest exemption issued by the SEC • Although it allowed non-accredited investors to invest, was rarely used, because of high compliance costs relative to the maximum funds raised o $5 million maximum offering o Did not preempt state law registration, requiring registrations in many states • The JOBS Act included legislation to create what is nicknamed “Regulation A+”, an upgrade to Regulation A • The new Regulation A keeps the allowance of non-accredited investors, and features two kinds of Regulation A offerings, called “Tiers”: o Tier 1, with a $20 M maximum, does not preempt state law registration, but has low federal compliance burdens o Tier 2, with a $50 M maximum, preempts state law registration, but has high federal compliance burdens including ongoing semi-annual, annual, and current disclosures Reg. A – History
  24. 24. • Went into effect June 19th • States do not like Tier 2 o Tier 2, per the JOBS Act, only preempts state registration for “qualified purchasers” with the seeming intent to not totally preempt the states o However, the SEC defined “qualified purchasers” to mean all Tier 2 purchasers o State securities regulators resent this loss of power • States have been creating a multistate single-registration process to make Tier 1 more palatable, and to show they deserve to not be preempted • The “mini-IPO” of the new Regulation A has excited investors, and for many companies may be better than relying on the crowdfunding exemption o Including for offerings done via Internet portals Reg. A – History (cont.)
  25. 25. Data of 2016 Source: • From its effective date in June 2015 through December 2016, there were 171 Regulation A offerings filed. Of these, 76 were Tier 1 offerings and 95 were Tier 2 offerings. • The aggregate proceeds sought to be raised in the filed deals was approximately $3 billion. • There were 97 offerings qualified. Thus far, $238 million has been reported sold, though more complete data will be available when issuers file their reports in a few months. Regulation A+
  26. 26. • Two kinds of Reg. A offerings, called “tiers”, with different qualities: Issue Tier 1 Tier 2 State law regulations? Not preempted; multistate coordinated review program to help Preempted Maximum amount raised? $20 M in 12 months, up to $6M of which from current holders $50 M in 12 months, up to $15M of which from current holders Per investor maximums? None Up to 10% of greater of non- accredited investor’s net worth or net income; unlimited for accredited Investor limitations Accredited and non-accredited okay Issuer limitations Cannot be public, shell company, bad actor, those failing certain SEC compliance rules Reg. A – Two Options (“Tiers”)
  27. 27. Issue Tier 1 Tier 2 Solicitation, advertising Testing for interest, soliciting OK, though notices needed and materials may be exhibits on SEC filing; potential to keep confidential SEC filings during this time Initial disclosures Financial statements for past two years, plus offering circular Same as tier 1, plus audited financials Disclosure to buyers? Circular or most recent Tier 2 report due to buyers by specific time before sale Ongoing disclosures File exit report at end of offering Yes, if 300+ holders; annual, semiannual, and current events. Limitation on need for full Exchange Act registration Securities restriction Unrestricted; affiliates have some limitations Allowed securities? Asset backed-securities banned Integration safe harbor Exists; allows non-US and crowd-funding to be separate Reg. A – Continued
  28. 28. Issue 506(b) 506(c) Reg. A Tier 2 State law regulations? Preempted Preempted Preempted Maximum amount raised? Unlimited Unlimited $50 M in 12 months, up to $15M of which from current holders Per investor maximums? Unlimited Unlimited Up to 10% of greater of unaccredited investor’s net worth or net income; unlimited for accredited Investor limitations Unlimited accredited, and 35 sophisticated non-accredited; self-certification standard Accredited only, and issuer must take steps to certify they are accredited Unlimited accredited (self- certified), unlimited non- accredited 506(b), 506(c), and Reg. A Tier 2
  29. 29. Issue 506(b) 506(c) Reg. A Tier 2 Issuer limitations No bad actors No bad actors Cannot be public, shell company, bad actor, those failing certain SEC compliance rules Solicitation, advertising Banned Soliciting of anyone is allowed Testing for interest, soliciting OK Initial disclosures Non-accredited: Equivalents of what they get in registered offering, plus anything accredited investor can get For accredited, see 506(c) Optional; must be available to answer questions Financial statements for past two years disclosed, plus offering circular with audited financials 506(b), 506(c), and Reg. A Tier 2 (cont.)
  30. 30. Issue 506(b) 506(c) Tier 2 Ongoing disclosures Form Ds Form Ds Yes, if 300+ holders; annual, semiannual, and current events. But special exemption from Exchange Act registration until over $75M float. Share restriction Restricted for a year Restricted for a year Unrestricted; affiliates still have some limits Allowed securities? ABS not specifically banned ABS not specifically banned Asset backed-securities banned 506(b), 506(c), and Reg. A Tier 2 (cont.)
  31. 31. • Blockchain is a shared unalterable ledger for recording the history of transactions • Trust, accountability and transparency • Decentralized, permanent, unalterable • Banking and Payments, Cyber security, Shipping and Logistics Supply Chain, Agriculture, Forecasting and prediction, ride sharing, cloud storage, charity, voting and government, public benefits, energy management Blockchain Technologies
  32. 32. Blockchain Technologies • Banking and Payments • Cyber Security • Agriculture • Shipping and Logistics • Supply Chain • Forecasting/Prediction • Crowdfunding • Healthcare • Energy • Securities ownership • Insurance • Real Estate • Ride sharing • Cloud storage • Charity • Voting • Government • Public benefits • Online music • Retail
  33. 33. • Traceability • Order + Inventory • IOT Integration • Transportation Management • Certification Organic Food Grower Certified Organic Shippers Wholesaler Retailer Consumer $ Products $ Products $ Products Blockchain Use Case: Smart Contract
  34. 34. Blockchain: Legal + IP Issues (Patents) • Patent - Bank of America, NASDAQ • Open Source - Hyperledger • Patent Pledge - Blockstream (will not sue) • Patent Pool – similar to Open Invention Network (Linux) Patent gives right to exclude all others in U.S. from making invention for duration of patent (20 years)
  35. 35. Blockchain: Legal + IP Issues (Trade Secret) A trade secret is any information that • is not generally known to the public; • confers economic benefit on its holder because the information is not publicly known; and • is the subject of reasonable efforts by the holder to maintain its secrecy.
  36. 36. • Community supported crowd sale of cryptocurrency tokens issued by startups based on private Blockchain technology • Creates liquidity and growth equity without giving up equity in a company • Tokens are sold in exchange for Bitcoin, Ether, or government fiat • No clear tax guidance • Regulatory Guidance: Canada, UK, Hong Kong, Thailand, Switzerland, Australia, Gibraltar, Singapore • Bans: China, South Korea, Macau Initial Coin Offering (“ICO”)
  37. 37. • In certain cases, the tokens or coins will be securities and may not be lawfully sold without registration with the SEC or pursuant to an exemption from registration • Will depend on the facts and circumstances including the economic realities of the transaction • Tokens can have different utilities and rights • Regulation A, Regulation D, or Regulation CF can be used • Potential CFTC and FinCEN Compliance • US vs. Offshore Offering • Investment Company Act – 100 investors or qualified purchasers ($5 million investments) • “Exchanges” under sec. 3(a)(1) of 1934 Act • Disclosure – White Paper • Security (remember the DAO) • PR + Marketing ICOs (cont.)
  38. 38. Issuer Law • Securities Law • Tax • AML/KYC • Anti Fraud • FINCEN • CFTC • FTC • Investment Company Act • Exchange Act $ Step 2: Build Platform Step 1: Pre-Sale $orCrypto SAFT Investors Step 3: ICO Tokens Investors The ICO: Crowdfunding on Steroids Team • Legal US • Tax US • Foreign Legal • Compliance • Marketing • KYC/AML • ICO Economies • Blockchain Technical Utility • Use of Token • Secondary Trading • Scarcity • Voting + Democratized
  39. 39. • SEC Chairman and CFTC Chairman’s February Testimony before the Committee of Banking, Housing, and Urban Affairs: “…structures of ICOs that I have seen involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.” • SEC Chairman Clayton: Market professionals and gatekeepers must act responsibly and hold themselves to high standards. In the ICO space "they can do better”. • SEC warned against ICO Sponsors not making adequate disclosures and cautioned market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions. • Family Resemblance test (Reeves) • Multi factor test applied to notes • Howey Test • An investment of money, in a common enterprise, with a reasonable expectation of profits, and to be derived from the entrepreneurial or managerial efforts of others. • The Risk Capital Test • The sale of membership to a country club was a security; substance over form • Investors were risking their capital in expectation of receiving the benefits of club membership, which was in the control of the issuers of the membership Is my token a security?
  40. 40. • The SEC’s Cyber Unit - Division of Enforcement • focused on misconduct involving distributed ledger technology and ICOs, the spread of false information through electronic and social media, brokerage account takeovers, hacking to obtain nonpublic information and threats to trading platforms and works closely with the SEC’s cross-divisional Distributed Ledger Technology Working Group • DAO Token – model described by one of the DAO founders as similar to “buying shares in a company and getting…dividends” • Munchee - restaurant meal reviews • SEC halted cease and desist – unregistered securities • ICO targeted investors, who had an expectation of future profits, rather than users of the products, with intention to use proceeds to develop application and future “ecosystem”, which would increase the value the MUN token • Marketing materials stated additional development and ecosystem would increase the price of the MUN token and could trade on secondary market within 30 day after ICO Enforcement Actions
  41. 41. o Rule 506 o 506(b): No general solicitation/advertising; accredited and 35 sophisticated unaccredited investors; preempt state law regulations o 506(c): Broad solicitation/general advertising; all accredited investors; issuer takes “reasonable steps” to verify accredited status; preempt state law regulations o Reg A o Tier 1: $20M in 12-month period; unlimited accredited and unaccredited investors; state laws not preempted (Blue Sky laws); unlimited accredited and unaccredited investors o Tier 2: $50M in 12-month period; unlimited accredited and unaccredited investors; solicitation okay for testing interest; all investors; state law regulations preempted o SAFTs o Securities law compliance: allow exempt offering o Redeem for utility token once platform is functional Rule 506 and Reg A
  42. 42. US Platform Co. Cayman ICO Co. Singapore ICO Foundation $ $ SAFT $ tokens Token Securities Compliance Step 1 Step 3: Cash to US Co. $ Step 2: ICO Issuance 1) 506 – All accredited 2) 506/Reg S foreign targeted offering 3) Non US offering 4) Foreign Utility Tokens – not a security 5) Reg A+ 6) Register with SEC 7) Sec 4(a)(2) private offering Resale Rule 144 (12 month holding) Section 12(g) Rule 12g3-2(b)
  43. 43. FINCEN FEB 13 LETTER Financial Crime Enforcement Network (FinCEN), Dep’t of Treasury letter to Senator Ron Wyden (D- Ore) 1) A developer that sells convertible virtual currency (i.e., bitcoin, ether, ripple, etc) including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type if MSB ( and register as a MSB with FInCen - a form filed annually and disclosure of some financial information). 2) An exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat, or other value that substitutes for currency, would typically also be a money transmitter. 3) FinCEN AML/CFT rules likely do not apply to ICO structures where (a) the tokens are offered as securities - SEC jurisdiction and their AML/KYC requirements or (b) future interests in commodities - CFTC jurisdiction and their AML/KYC requirements.
  44. 44. SEC MARCH 7 PUBLIC STATEMENT Statement on Potentially Unlawful Online Platforms for Trading Digital Assets Divisions of Enforcement and Trading and Markets March 7, 2018 Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings ("ICOs"). If a platform offers trading of digital assets that are securities and operates as an "exchange," as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration
  45. 45. Tax Considerations • Equity? • Debt? • Capital asset? • Barter exchange? • Prepaid goods or services? • Subpart F Issues: CFC/PFIC? • Deferral? • Open - transaction? • Forward contract ? • Executory Agreement to Sell? • Information Reporting • FATCA • FBAR
  46. 46. • Section 965: Transition Tax • Section 245A: Participation Exemption • Section 951A: Global intangible low-taxed income (“GILTI”) • Section 250: Foreign-derived intangible income (“FDII”) • Subpart F • Passive Foreign Investment Companies (PFIC) • Transfer Pricing Rules • Tax exempt organizations vs associations International Tax Rules
  47. 47. • One time inclusion of E+P of certain foreign corporations • Effective tax rates of • 15.5% to extent of cash • 8% non cash assets Section 965 – Transition Tax
  48. 48. • Deduction for certain foreign source dividends from 10% owned foreign corporation paid to domestic corporation • Modified territoriality Section 245A – “Participation Exemption”
  49. 49. • Foreign minimum tax on GILTI of 10.5% until 2025 • Based on net income less deemed return on tangible assets Global Intangible Low-taxed Income (“GILTI”)
  50. 50. • C corporations • Foreign net income in excess of deemed return on tangible assets • 37.5% deduction • Effective tax rate of 13.125% (until 2025) Foreign-derived Intangible Income (“FDII”)
  51. 51. • Certain types of mobile income (SPF income) of controlled foreign corporations (more than 50% owned by US shareholders) taxable as deemed dividends to US shareholders (10% owners) Subpart F
  52. 52. • U.S. persons owning shares of a passive foreign investment company (PFIC) have either (i) current taxation on the income of the PFIC (under a QEF election) or (ii) a deemed tax and interest regime. PFIC
  53. 53. • Code Sec 482 requires transactions between related parties to be at arm’s length Transfer Pricing
  54. 54. • Charitable • Civic Leagues • Clubs • Business Leagues • Etc. • Not organized for profit • No private investment • Prohibited transaction: loss of status • Disregarded as agent or nominee Tax Exempts: 501(c)
  55. 55. US Platform Cayman Swiss Foundation $ or crypto tokens ICO Structure Tax Vulnerabilities utility $ 1) Treatment of Swiss Co 2) Subpart F incomes 3) Transfer price 4) GILTI tax
  56. 56. • Commodity Futures Trading Commission (“CFTC”) • Commodity “Interests” • Financial Crimes Enforcement Network (“FinCEN”) • Money Services Business: user, administrator, exchanger • Money transmitters licenses: state-by-state requirement • IRS: Tax Considerations • Consumer Protections • Breach of contract, false advertising, fraudulent or negligent inducement • Industry Specific Regulations • Global Regulatory Regimes • FTC Other Interested Agencies
  57. 57. ROYSE LAW FIRM, PC Contact Us PALO ALTO 1717 Embarcadero Road Palo Alto, CA 94303 LOS ANGELES 11150 Santa Monica Blvd. Suite 1200 Los Angeles, CA 90025 SAN FRANCISCO 135 Main Street 12th Floor San Francisco, CA 94105 Palo Alto Office: 650-813-9700 CONTACT US m @RoyseLaw MENLO PARK 149 Commonwealth Drive, Suite 1001 Menlo Park, CA 94025 SANTA MONICA 520 Broadway Suite 200 Santa Monica, CA 90401 SAN FRANCISCO 135 Main Street 12th Floor San Francisco, CA 94105 Menlo Park Office: 650-813-9700 CONTACT US @RoyseLaw ORANGE COUNTY 135 S. State College Blvd Suite 200 Brea, CA 92821