I’d like to provide a clarification update on the AA’s resolution and to address specific questions that have been raised regarding the ANT Redemption Initiative.
Clarification on Tax Obligations with Zug Tax Authorities
The AA was incorporated as legal entity in the canton of Zug, Switzerland. Its taxation was defined by a binding tax ruling that was granted by Zug tax authorities. The historical tax ruling that AA had was a favorable taxation, as long as the expenses were aligned with the entity’s purpose.
The AA diligently worked with the Zug tax authorities to ensure that the redemption initiative aligned with current tax regulations. Through careful planning and legal consultation, the AA secured a new tax ruling that allowed it to proceed with the redemption while minimizing the tax burden and guaranteeing project continuity. This was a crucial step to maximize the funds available for the ANT holders’ redemption and ensure the project’s continuity. Without this explicit, binding and stamped tax ruling, the taxation of any ANT Redemption initiative would have resulted in a massive reduction of the funds available for the redemption.
Clarification on ANT Redemption Initiative structure and target rate
The AA’s decision to proceed with a single redemption round at a fixed rate was bound by specific tax and legal constraints. The AA evaluated executing a second round of redemption. However, a second round had to be ruled out for the following reasons:
- Risk of re-qualification as a Security (asset tokens): This would likely be the case if a second redemption round were pre-announced as a given action (implying a legal claim). If that re-qualification happened, no entity could engage in any second ANT redemption round without having a securities firm license (which neither AA, nor ASF, nor Eagle Association hold), otherwise they would incur serious liabilities.
- Risk of qualification as a Collective Investment Scheme: Collective investment schemes within the meaning of the CISA are assets collected from investors for collective investment, and which are managed (by third parties) for the account of such investors. If that qualification came into effect due to the consideration of AA managing those assets (under an assumption based on the promise to repay those assets), and the AA engaged in multiple redemption rounds or offered a payout significantly above the market rate, those actions could be viewed from an economic perspective as a collective investment. In that case, the AA would have had to pay a 35% withholding tax on the funds allocated to the redemption smart contract. That would have significantly reduced the total assets available for redemption as the total taxation for the ANT redemption initiative would have been up to $82M (at $/ETH rate of 02.11.23), and likely resulted in enforcement actions against anyone involved by the financial market regulator
By executing the initiative in a tax-compliant manner, the AA was able to maximize the ETH:ANT rate, having a final tax cost of just $1.4M as opposed to $82M.
The ANT Redemption Initiative approved by the new tax ruling targeted 100% of the outstanding circulating supply as its objective is to eliminate all the circulating supply of the token. For this reason, it was mandatory to provide an equal and fair opportunity to all ANT holders to participate in the redemption. The AA could not exclude any ANT holder based on arbitrary parameters nor assumptions of redemption participation over the 12 month initiative, which are not possible to know in advance.
Clarification on successor non-profit and use of any potential leftover funds
As explained in the announcement, any potential leftover ETH in the ANT redemption contract will be automatically sent to a successor Swiss non-profit association (named Eagle Association) and allocated by the Product Council.
Changes to the Eagle Association’s purpose, name, or operational rules require a two-thirds majority vote and the consent of the Aragon Shield Foundation. The Aragon Shield Foundation, also a Swiss entity, acts as a protective body for the Aragon Project, also safeguarding funds to fulfill outstanding obligations and mitigate against regulatory uncertainty. It operates under strict guidelines, with its purpose and organization detailed in a notarial deed, overseen by the Swiss Foundation Supervisory Authority. The foundation’s role is to ensure that assets are used in line with its mission to support the Aragon Project, and it cannot be altered without regulatory approval.
As a result, all funds that go to the Aragon Shield Foundation and the Eagle Association are immutably bound to the Aragon Project’s mission. The structure legally protects against anyone involved in either the Aragon Shield Foundation or the Eagle Association to “run away with funds.” In addition, the AA no longer has any sort of decision-making power over any funds, and no AA member can participate in the Eagle Association.
The AA prioritized respecting the regulatory frameworks and cooperating with authorities in its jurisdiction: Switzerland. The continuation of the project was structured to ensure that this will continue to be the case moving forward.
Lastly, this will be my last update in this Forum on behalf of the AA, and I will no longer have any role within the continuation of the project. I fully trust in the capacity and motivation of those who will keep advancing the mission in a product-focused set up.
Note: All legal and tax statements in this post have been provided by professional legal and tax experts.