No tax system has a regime for security tokens. Every tax system has six questions, and the answers resemble each other more than one expects.
Whoever issues a tokenised security and asks how it is taxed usually gets a national answer: the article of their own income tax act, the threshold of their own information return, the rate on their own scale. That answer is useful and incomplete, because a tokenised issuance rarely stays in one jurisdiction: the issuer is in one place, the holder in another, the platform in a third and the underlying asset in a fourth.
What can be said generally is what the questions are. There are six, they arise in any developed system, and they are ordered: each makes sense only once the previous one is resolved.
1. What right sits inside the token?
No tax system has a regime for security tokens, and it is unlikely that any will. What each system does is apply to the token the regime of the right the token embodies. A token representing shares is treated as shares; one representing a bond, as a bond; one representing a participating loan, as that loan.
This has a consequence worth accepting early: tokenisation creates no new tax treatment and does not allow one to be chosen. It changes the medium and the means of transfer, not the taxable event. The question “how is my token taxed” is in reality the question “what did I put inside it”.
2. Is there a recognised market price?
Here tokenisation tends to disappoint expectations, and does so with surprising uniformity across countries.
Tax systems treat securities admitted to trading on a regulated market differently from those that are not. For the former there is an objective, verifiable price. For the latter, most legislations lay down valuation rules that do not trust the agreed price and replace it with accounting figures, unless the taxpayer establishes that the amount paid is what independent parties would have agreed.
Spanish law is a clear example: on the transfer for consideration of securities not admitted to trading, if that arm’s-length character is not proved, the transfer value becomes the higher of the net equity attributable to the securities under the last closed balance sheet or the average result of the last three financial years capitalised at 20%.
What matters is not the Spanish detail but the pattern. One tokenises in search of liquidity and an observable price; and for as long as the token does not reach a regulated market, it is taxed like an unlisted shareholding. The existence of a price on an exchange platform does not usually amount, for tax purposes, to admission to trading.
3. Does the system look through the token?
Almost every jurisdiction has some rule preventing a security being used as a wrapper for real property. It may be called an anti-avoidance rule, a look-through rule or an assimilation clause, and the mechanism is always the same: where what is transferred are securities in an entity whose assets are predominantly immovable property, and control is obtained through that transfer, the transaction is taxed as a transfer of the property.
The OECD Model Tax Convention embodies the same idea in the allocation of taxing rights: gains from shares deriving more than half their value from immovable property may be taxed where the property is situated.
So wrapping the building in a company and the company in tokens does not alter the outcome. If the transaction amounts to transferring the building, the domestic rule reaches it all the same, and so does the treaty.
4. Which reporting regime applies: the crypto-asset one or the securities one?
This is the newest question and the one generating most errors, because two parallel reporting machineries exist and a tokenised security can appear to fall into both.
On one side, the OECD’s Crypto-Asset Reporting Framework — CARF — and, in the European Union, Directive 2023/2226, known as DAC8, whose general obligations apply from 1 January 2026 and which bears on crypto-asset service providers authorised under MiCA as well as on non-authorised operators. On the other, the classical reporting regimes for securities and foreign accounts, built for financial instruments.
Whether a tokenised security falls within the first, the second or both is not a matter of common sense but of definition, and the definition is not identical everywhere. In Spain, for instance, the information return for virtual currencies held abroad is not the channel for a tokenised transferable security, which belongs to the securities and rights regime; whoever uses the former because “it is crypto” is filing the wrong form, and filing it correctly.
The practical rule is the same in any jurisdiction: the classification is settled before issuing, in writing, and documented. Doing it afterwards is expensive.
5. Where is the security located, and where does the income arise?
A traditional security has physical anchors: a register, a custodian, the issuer’s domicile. A token has an address, and an address is nowhere.
Double tax treaties are untroubled by that, because they do not allocate according to where the asset sits but according to the nature of the income and the residence of the parties: dividends, interest and capital gains each have their own rules. What tokenisation complicates is not the rule but the evidence for applying it: establishing the beneficial owner’s residence, justifying a reduced treaty rate, identifying the payer.
The criterion is, again, that the token resolves nothing by itself. The legal structure of the issuance determines where the income arises and who receives it; the distributed ledger merely records the result.
6. Who is the holder?
This is the last question and the one that conditions all the others, because there is an obligation that tokenisation does not simplify but can make materially impossible to discharge: withholding at source.
If the issuer distributes yield through a smart contract to addresses with no associated identity, it cannot withhold, cannot issue a certificate and cannot report. The obligation does not disappear for that reason: it falls on the issuer, who answers for what it should have withheld even though it did not know whom it was paying. A bearer token is not a more efficient instrument: it is a tax obligation with no one to pass it on to.
From where we look at it, this is not a tax curiosity: it is the same frontier we meet when enforcing an award. An award operates on an identified person. A withholding is made from an identified person. A treaty applies to an identified resident. The legal system — fiscal, procedural, arbitral — does not work against an address: it works against someone.
The token does not supply that someone. The legal design of the issuance supplies it, or nobody does. And that is why taxation is the first reality test of any tokenised structure: it arrives before the dispute, asks the same question, and grants no extensions.
Institutional interest note: BACS (Blockchain Arbitration & Commerce Society) is a non-profit arbitral institution registered in the European Union Transparency Register under number 9106897105368-14. This analysis is general in nature and does not constitute tax or legal advice on any particular case or any particular jurisdiction.
Sources: OECD Crypto-Asset Reporting Framework (CARF); Directive (EU) 2023/2226 (DAC8), with general obligations applicable from 1 January 2026 and a transposition deadline of 31 December 2025; OECD Model Tax Convention, Articles 10, 11 and 13; Regulation (EU) 2023/1114 (MiCA). The Spanish examples are drawn from Article 37(1)(b) of Law 35/2006 on personal income tax, Article 314 of the consolidated Securities Markets and Investment Services Act, and information returns 720 and 721.
