Legal Journal

Tokens As Crypto-Assets

Token

With the Internet reaching high speeds, many virtual products have emerged that have been circulating on the Internet: tokens, coins, digital currencies, virtual currencies etc.

The main difference between tokens and coins is that a blockchain platform is required to create tokens. On the other hand, each coin has its own blockchain. Ethereum is the most common platform for creating tokens, mainly due to its smart contract function.  There are other platforms for tokens such as Neo Wave.

For instance, Basic Attention Token (BAT) is one of the Tokens created to enhance digital advertising. It is an ERC-20 token created on Ethereum blockchain. Advertisers pay for ads with BAT tokens. These tokens are distributed to publishers and browser users as compensation for both hosting and viewing ads, respectively. “There are also “security tokens,” which essentially represent one’s investment in a project. Although they take value from the startup behind the project, they don’t give the holder actual ownership in that startup.  People buy these tokens solely with the idea that their value will increase in the future^[i]”

Purchase and Sale of Tokens

The "Regulation on the Use of Crypto-Assets in Payments" published in the Official Gazette on April 16, 2021[ii], clarified two issues.

Article 3.1 of the Regulation defines Crypto-Assets.

“In the implementation of this Regulation, crypto-asset refers to intangible assets that are created virtually using distributed ledger technology or a similar technology and distributed via digital networks, but are not classified as fiat money, deposit money, electronic money, payment instrument, securities, or other capital market instruments.”

The Regulation stipulates three requirements for an asset to be defined as a Crypto-asset.

• All intangible assets that are created virtually on a blockchain (distributed ledger technology),
• that are distributed via digital networks,
• that do not qualify as money, securities or capital market instruments are defined as crypto-assets.

Pursuant to the second and third paragraphs of Article 3 of the Regulation, crypto-assets/tokens shall not be used for the following transactions.

(2) Crypto-assets shall not be used directly or indirectly in payments.

(3) No services shall be provided that enable the use of crypto-assets directly or indirectly in payments.

In other words, the Regulation does not introduce prohibitions on creating or trading crypto-assets/tokens; it prohibits the use of crypto-assets as a means of payment, as a means of payment/money in another purchase or sale and the provision of services for this purpose.

How to record crypto-assets in the accounting system is a controversial issue. There are those who define it as securities and those who oppose it. Currently, the main trend in accounting for Crypto-assets is their classification as intangible fix assets[iii]. The expression "Intangible Assets" in the Regulation also supports this interpretation.

Is There an Administrative Obligation to Create or Trade Tokens?

There is no obligation to enter or register on an official stock exchange market to create, buy and sell tokens.

Similarly, there is no obligation to obtain permission from an administrative authority to create, buy or sell tokens.

Token Trading 

A Turkish company that will trade tokens will have the status of a company that sells goods and services and will make all purchases and sales transactions with invoices in accordance with the tax legislation. Naturally, it will be responsible for the income and VAT generated as a result of these purchases and sales, and will be subject to income tax or corporate tax at the end of the financial period.

With respect to issues such as whether there is a restriction or requirement of an administrative permission for token trading on a website set up by a company residing in another country, it is necessary to refer to the legislation of that specific country.  However, if the purchased Token is to be transferred to the e-wallet account held by a Turkish company, then the transaction will be governed by Turkish law.

Att. Ege İnanıcı