EU Finance Ministers Collaborate on Breakthrough Directive for Transparent Taxation of Crypto Assets (DAC8)

June 1, 20230

Introduction

The European Union (EU) has achieved a significant milestone in enhancing tax transparency and compliance by reaching a political agreement on an updated compromise text for the Directive on administrative cooperation. This directive aims to implement the Organization for Economic Co-operation and Development’s (OECD) rules on the Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard (DAC8). With the ever-growing importance of crypto assets and electronic money services, the agreed-upon rules will require institutions operating within the European Union to report their transactions starting from 2026.

 

Scope and Reporting Requirements

Under the revised directive, reporting requirements for crypto assets have been introduced, focusing on transactions carried out by European Union resident clients from reporting crypto-asset service providers. This crucial step ensures transparency and accountability in the tax landscape. Furthermore, the directive extends the scope of the automatic exchange of information rules, including provisions targeting advance cross-border rulings of natural persons.

 

Council’s Political Agreement and Next Steps

During the Economic and Financial Affairs Council (ECOFIN) meeting on 16 May 2023, the Council of the European Union (the Council) reached a political agreement on the compromise text for the Directive on administrative cooperation. The compromise text, published by the Swedish Council presidency, resulted from negotiations among Member States, leading to amendments to the European Commission’s initial proposal released on 8 December 2022. The formal adoption of the Directive is expected to take place in early June, following the completion of the parliamentary consultation process on 30 May 2023. After the Council’s formal adoption, Member States will have until 31 December 2025 to transpose the main rules into national law, with the provisions coming into effect on 1 January 2026.

 

Reporting and Exchange of Information Requirements

DAC8 imposes an obligation on reporting crypto-asset service providers to collect and verify information on crypto-asset users in accordance with due diligence procedures. Subsequently, these providers must report relevant information to the competent authorities of the Member States where the users are residents. To facilitate the smooth exchange of information, the competent authorities of the receiving Member State will convey the reported information to the competent authorities of the relevant Member State.

 

Expansion of Information Exchange Rules

In addition to addressing the automatic exchange of information on crypto assets and e-money, DAC8 expands the scope of current rules on the exchange of tax-relevant information. The directive includes provisions on the exchange of advance cross-border rulings concerning high-net-worth individuals, ensuring transparency and effective oversight. Furthermore, DAC8 introduces provisions for the automatic exchange of information on non-custodial dividends and similar revenue. Additionally, several other provisions have been amended, including reporting and communication of Tax Identification Numbers (TINs), which assist tax authorities in accurately identifying relevant taxpayers and assessing related taxes.

 

Changes from the Initial Proposal

The compromised text reflects significant changes from the initial proposal. Notably, the regime on minimum penalties for noncompliance across DAC requirements has been removed. This grants Member States the discretion to impose penalties according to their own judgment, provided they are effective, proportionate, and dissuasive. Moreover, the scope of the automatic exchange of information on advance cross-border rulings has been refined, focusing on transactions exceeding €1.5 million and tax residence determinations of natural persons, with exceptions applied to avoid excessive administrative burden.

 

References and Final Steps

To ensure consistent application of the proposal, DAC8 references the Commentaries of the Model Competent Authority Agreement, the Crypto-Asset Reporting Framework, and the Common Reporting Standard developed by the OECD. The European Parliament is expected to adopt the Directive following consultation, and once adopted, Member States will need to transpose it into national legislation. The updated rules are set to come into effect from 1 January 2026, requiring affected organizations to assess the necessary changes and initiate implementation efforts accordingly.

 

Conclusion

The EU’s political agreement on the updated Directive on administrative cooperation for tax transparency in relation to crypto-assets marks a significant step toward establishing a robust framework for reporting and exchanging information. By enhancing tax transparency and compliance, the EU seeks to ensure fair taxation and strengthen financial oversight in the evolving landscape of digital assets. The agreed-upon rules will contribute to a more transparent and accountable financial ecosystem, promoting trust and stability in the EU market. As the directive moves closer to formal adoption and subsequent national transposition, affected organizations must remain proactive in preparing for the forthcoming changes to align with the new reporting requirements and support the EU’s vision of a transparent and sustainable financial sector.

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