On 8 December 2022, the European Commission proposed new tax transparency rules for service providers facilitating transactions in crypto assets for consumers residing in the European Union.

The proposal complements the Markets in Crypto – Assets Regulations (MiCA) and anti-money laundering rules.

The proposal constitutes the seventh amendment to the Directive for Administration Cooperation (DAC) and is consistent with the OECD initiative on the Crypto – Asset Reporting Framework (CARF) and the amendments to the OECD Common Reporting Standard (CRS).

The proposed regime describes how the features of crypto – assets create difficulties as to the traceability and detection of taxable events by the tax authorities.

The proposed DAC8 would assist tax administrations in levying taxes and detect and counter tax-fraud by requiring crypto service providers to report certain information on crypto- asset transactions to EU Member States.

As such, the proposed rules will:

• Require all crypto – asset service providers, irrespective of location or size, to report domestic and cross – border transactions and in some cases, non – fungible tokens (NFTs), of clients residing in the European Union;
• Require financial institutions to report on central bank digital currencies and e-money;
• Extend the automatic exchange of advance cross – border rulings for individuals who hold a minimum of €1 million in investable or financial wealth, or in assets under management;
• Introduce a minimum level of penalties of up to €500,000 for infringements of reporting requirements.

Valdis Dombrovskis, Commissioner for Trade highlighted the challenges that alternative means of payment entail and uttered that “As part of our fair taxation agenda, we will update our tax rules to address these issues, introducing a common standard to align different national taxation approaches for crypto assets. This will help national administrations to collect tax more efficiently by including income from crypto assets and keep up with evolving technology as Europe moves forward with its digital transition.”

Beyond that, the Commission held that the recently agreed MiCA Regulation will replace current national rules governing crypto – assets (custody, issuance, trading) and provide the pillars for access to the EU crypto – asset market. It is said that, the DAC8 would be aligned with the definition laid out in MiCA and will avoid additional administrative burdens to crypto – service providers by relying on the authorisation requirements introduced by MiCA.

Finally, the Commission aims for the proposed reporting requirements to enter into force on 1 January 2026.

The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.

For further information please contact us.