Case Study

Protocol Labs partners with Toku to streamline its token grant and equity grant administration under one solution

September 7, 2023

Protocol Labs partners with Toku to streamline its token grant and equity grant
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One of the oldest and most established crypto companies, Protocol Labs is a research, development, and deployment lab focused on creating open-source technologies and protocols for improving the decentralized web. Since its inception in 2014, Protocol Labs has been instrumental in creating several groundbreaking projects, including IPFS, Filecoin, and libp2p, among others.

The company operates fully remotely and has a team of over 200 employees located in more than 35 jurisdictions globally. The team is compensated through a combination of fiat salary, vesting Filecoin grants, and sometimes equity grants. To support its global team Protocol Labs has collaborated with various many different firms, such as accountants, law firms, EORs, and payroll firms over the last decade.

Finding a single solution and a partner that understood tokens, token grants, and can handle Filecoin directly was a challenge until they started working with Toku.

“We’ve worked with pretty much every EOR in the industry. They’ve all raised hundreds of millions of dollars but have no idea how to work with crypto companies or how to handle tokens. We love working with Toku because they just get it and they care.”

- Phil Karl, Controller at Protocol Labs

Complex tax compliance for token and equity grants in Italy

Protocol Labs faced complex tax compliance challenges for token grants in Italy due to the unique tax situation of their employees.

The company hires talent from all over the world and typically partners with an EOR in a foreign jurisdiction to facilitate employment and compensation compliance. However, in Italy, Protocol Labs encountered a case where an employee had multiple Filecoin vesting token grants, equity grants, and a unique tax and immigration situation left unsupported by traditional EORs.

After trying an internal, time-consuming, and highly manual patchwork solution, Protocol Labs’ team knew they needed to find a new partner that could handle the calculations of tax withholding obligations on many overlapping token and equity grants and the execution of the sell-to-cover process. Moreover, with the unique complexities of the Italian tax code, local expertise was a critical requirement.

Technical note: The Italian tax code treats different types of tokens differently. In some cases, a capital gains tax is required to be paid on the token grant if there is a difference in price at the time of sale versus the 30-day average price of the token, which is the average price at which the tax rate is calculated on. In other cases, the fair market value of the tokens is determined based on the price from a liquid exchange. Additionally, there are many different types of exemptions and rules that may change the final taxable amount for the employee.

To overcome these challenges, Protocol Labs turned to Toku.