EU adopts new tax data sharing rules to enhance crypto regulation

The new tax rules draw upon MiCA definitions to cover crypto-assets including, decentralised cryptos, stablecoins, e-money tokens, and specific NFTs

By Shashank Bhardwaj

Published: Oct 18, 2023 07:07:34 PM IST

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On October 17, the European Union (EU) adopted a directive to amend its rules on administrative cooperation in taxation (DAC8). The directive aims to enhance the legal framework regarding crypto among tax authorities.

The Directive on Administrative Cooperation in the Field of Taxation (DAC8) mandates that crypto-asset service providers (CASPs) must disclose their customers' transactions to tax authorities, with a specific focus on reporting data related to crypto transactions involving high-net-worth individuals.

The rules for the DAC8 directive were initially proposed in 2022 by the European Commission at the request of the EU. On May 16, the European Council agreed on the need for amendments to the directive.

On September 13, the European Parliament gave its thoughts on the directive through a ‘consultation procedure’. On October 17, member states in the European Council adopted the directive unanimously. The directive is set to be published in the official journal soon. It will enter into force on the twentieth day following its publication.

The new tax rules cover crypto-assets building on the definitions set in the Markets in Crypto-Assets (MiCA) regulations. Decentralised cryptos, stablecoins, e-money tokens and a few non-fungible tokens (NFTs) will be included.

The decentralised and cross-border nature of crypto assets pose challenges for the tax administrations of EU member states in ensuring tax compliance. International administrative cooperation is needed to tackle this problem and ensure effective tax collection.

According to the European Commission, responsible for proposing EU laws, the DAC8, in harmony with the Markets in Crypto Assets Regulation (MiCA) and anti-money laundering regulations under the Transfer of Funds Regulation (TFR), can help ensure tax compliance in the crypto market.

The commission stated that “The directive will improve Member States’ ability to detect and combat tax fraud, avoidance and evasion, by requiring all EU-based crypto-asset service providers, regardless of their size, that they report transactions from customers residing in the EU.”

The EU’s new crypto tax data sharing rules will deter people from using crypto for illegal activities, such as tax evasion and money laundering. These rules will help to make the crypto industry more transparent and accountable.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash