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.

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.

A compliant and easy experience

Protocol Labs terminated its previous relationships with traditional service providers and partnered with Toku to automate the complex tracking and tax compliance work that comes with administering token and equity grants for employees in Italy. 

Protocol Labs no longer needs to work with multiple different service providers and manually maintain grant and employee data, reducing the risk of errors and increasing efficiency. Toku's white glove service provides Protocol Labs with expert execution of all aspects of equity and token grant administration, from calculating tax withholdings through executing the sell-to-cover process to ensuring on-time transfers to the Italian tax authority (Agenzia delle Entrate). Through the process, Protocol Labs can rely on Toku’s team to provide prompt responses to all questions, freeing up time for the Finance team to focus on other core business activities.

Toku’s expertise in taxation on various forms of compensation, including token grants and equity grants, combined with deep knowledge of Italian employment and tax regulations helps Protocol Labs’ employees get the support they need to stay in compliance locally. Employees now get accurate tax withholdings, payslips, income verification, and other documents that allow them to document the full scope of their income if they need a mortgage, loan, or extend their visa. 

Currently, Protocol Labs continues to roll out Toku’s grant administration solutions to employees across other jurisdictions.