Decentralized autonomous organizations: Tax considerations
A decentralized autonomous organizations (DAO) is an organization that is managed by a computer program powered by blockchain and run by a group of individuals who collectively vote to decide on organizational proposals. Typically, each member’s voting power is determined by their percentage interest in the DAO, which is calculated by dividing the digital assets contributed by a member by the total amount of digital assets in the DAO.
A DAO generally (but not always) operates without the need for a board of directors or other governing body and can provide an effective and (potentially) secure platform to gather individuals and resources to achieve a collective goal.
Many DAOs are formed to make investments. A typical DAO activity starts with investors transferring their digital assets, typically Ether (ETH), to a DAO in exchange for DAO tokens, which usually represent an ownership interest in the DAO. Though, in some cases, DAO tokens do not amount to ownership interest, but merely represent, for example, a right to govern a DAO’s assets, depending on how the DAO defines its tokens.
Related: DAOs are the foundation of Web3, the creator economy and the future of work
Token holders then collectively vote to pick investment proposals submitted by applicants. If the investment is successful, token holders share the resulting profits; if not, they share the losses. When properly operated, the above activities can be achieved, without human intervention, by computer code known as a “smart contract.”
Although a DAO seems like a cyber creation without any formal character, it can still be an entity for tax purposes. In the United States, for example, the tax regulations provide that a joint venture or other contractual
Read more on cointelegraph.com
