Virtual Asset Service Providers (VASPs) must decide whether to recognize revenue on a gross or net basis—a decision that hinges on their role as principals or agents under IFRS 15 guidelines. This guide explores the nuances of revenue reporting for crypto businesses, ensuring compliance and financial clarity.
Gross vs. Net Revenue: Key Considerations for VASPs
Principal vs. Agent Roles in Revenue Recognition
When a VASP facilitates crypto transactions, it must determine if it:
- Acts as a principal (recognizing gross revenue and cost of goods sold).
- Functions as an agent (recognizing only net fees).
Critical factors include:
- Control over assets: Does the VASP hold custody risk before transferring tokens?
- Pricing authority: Does the VASP set transaction prices?
- Fulfillment responsibility: Is the VASP accountable for delivering the asset?
👉 Explore how top VASPs handle revenue recognition
IFRS 15 Guidelines for VASPs: Gross or Net Revenue?
Under IFRS 15.B34A, VASPs follow a two-step framework:
- Identify specific goods/services provided (e.g., crypto trading, custody).
- Assess control before transferring assets to customers.
Indicators of gross revenue recognition:
✔️ Direct custody of tokens
✔️ Inventory risk exposure
✔️ Authority to set prices
Example: OTC desks (like Sinohope) often recognize gross revenue, while exchanges/payment processors (like PayPal) report net fees.
Comparative Table: Gross vs. Net Revenue Recognition
| Aspect | Gross Revenue Recognition | Net Revenue Recognition |
|---|---|---|
| Role | Principal | Agent |
| Revenue Reported | Total transaction value | Fees/commissions |
| COGS | Recognized | Not applicable |
| Custody Risk | Yes | No |
Real-World Case Studies
1. PayPal Holdings (Net Basis)
- Revenue Source: Fees from crypto purchases/sales.
- Why Net? Acts as an agent—facilitates transactions without controlling assets.
From Their Filings:
"We recognize net revenues from cryptocurrency facilitation, as we do not take ownership of the underlying assets."
2. Sinohope Technology (Gross Basis)
- Revenue Source: Direct crypto trading.
- Why Gross? Controls assets, sets prices, and bears inventory risk.
From Their Filings:
"Revenue is recorded gross as we are the principal in trades, controlling cryptocurrencies before delivery."
Strategic Implications for VASPs
- Compliance: Misclassification risks regulatory penalties.
- Financial Metrics: Gross revenue inflates top-line numbers but may increase perceived risk.
- Investor Perception: Net revenue reflects stable fee-based income.
👉 Learn how leading VASPs optimize revenue reporting
FAQ Section
Q1: How do VASPs determine if they’re principals or agents?
A: Evaluate control over assets (custody, pricing, fulfillment). IFRS 15.B34A provides a clear framework.
Q2: Can a VASP switch between gross and net reporting?
A: Only if its role changes (e.g., shifting from OTC trading to agency services).
Q3: What are the tax implications of gross vs. net reporting?
A: Gross revenue may lead to higher taxable income, while net revenue aligns with fee-based taxation.
Q4: How does this affect balance sheets?
A: Principals report inventory (crypto holdings), while agents do not.
Conclusion
VASPs must rigorously assess their role in transactions to comply with IFRS 15. Whether reporting gross or net revenue, clarity ensures accurate financial statements and builds stakeholder trust.
For deeper insights, consult a Chartered Accountant specializing in crypto finance.
About the Author:
Chan Wei Xiang, Co-Founder of Web3 Accountant, is a Singapore CA with experience at OKX, DigiFT, and KPMG. Host of Web3 Accountant Radio.
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