In a move to adapt to the evolving financial landscape, the European Union (EU) Member States have formally adopted Directive 2011/16/EU on administrative cooperation in the field of taxation, known as DAC8. This directive, which follows a political agreement reached on 16 May 2023, introduces comprehensive tax transparency rules for crypto assets and expands cooperation among Member States’ tax authorities.
DAC8: Bridging the Gap
The revised DAC8, unanimously adopted by the Council of the European Union on 17 October 2023, marks a crucial step in addressing the challenges posed by crypto assets in the tax arena. This directive extends the scope of automatic exchange of information and introduces various amendments aimed at enhancing tax transparency.
DAC8 should be closely examined alongside the Markets in Crypto-Asset Regulation (MiCAR), as it contains numerous cross-references to definitions within the regulation.
Key Provisions of DAC8
- Expansion of Information Exchange: DAC8 widens the scope of automatic exchange of information to encompass data from transactions involving crypto assets, noncustodial dividends, and advance cross-border tax rulings for high-net-worth individuals.
- Enhanced Reporting Under DAC2: This directive incorporates an expansion of information reporting requirements, including adjustments made to the Common Reporting Standard (CRS) by the Organisation for Economic Co-operation and Development (OECD).
- Legal Professional Privilege Exemption: DAC8 introduces an exemption for lawyers bound by legal professional privilege from notifying other intermediaries of their reporting obligations, aligning with the Court of Justice of the European Union (CJEU) ruling.
- DAC7 Reporting: It offers the possibility of reporting a government-issued identifier as an alternative to the Seller’s taxpayer identification number (TIN) under DAC7.
- Use of Information: DAC8 allows for the use of exchanged information for value-added tax (VAT), indirect taxes, custom duties, non-tax purposes related to anti-money laundering, and countering the financing of terrorism.
- Detection of Violations: Information exchanged under DAC can be used for the detection of violations or circumvention of restrictive measures, such as EU sanctions.
- Verification Tool: DAC8 introduces the development of a European verification tool for TINs accessible to governments.
- Data Retention: Member States are obligated to retain received information for at least five years from the date of receipt.
- TIN Validation: DAC8 emphasizes the importance of TIN reporting for various directives, promoting electronic confirmation of TIN validity.
- Monitoring and Reporting: Member States are required to monitor and report annually on the effectiveness of administrative cooperation, including combatting tax evasion and avoidance.
- DAC1 Reporting: TIN reporting for DAC1 regarding income from employment, director’s fees, and pensions is introduced for taxable periods starting from 1 January 2030.
EU Member States have until 31 December 2025 to transpose the main rules into national law, with the new provisions generally taking effect on 1 January 2026.
Background and Evolution
The Directive on Administrative Cooperation (DAC) originally aimed to foster cooperation between tax authorities, primarily focusing on the exchange of information related to employment and pension income. Over time, the DAC underwent multiple amendments to facilitate the automatic exchange of information in various tax-related areas.
The journey towards DAC8 began with a public consultation initiated by the European Commission in 2021, which resulted in proposals to enhance reporting and exchange of information for tax purposes concerning e-money and crypto assets.
In December 2022, the Commission introduced a legislative proposal for DAC8 to expand reporting obligations for crypto-asset service providers. Subsequently, EU Finance Ministers reached a political agreement in May 2023, leading to the adoption of DAC8. Notably, amendments proposed by the European Parliament were not included in the final directive.
DAC8 in Action
DAC8 enters into force on 13 November 2023, and EU Member States are tasked with implementing its main rules into national law by 31 December 2025. The directive aims to increase tax transparency regarding crypto assets, expand the reporting landscape, and strengthen the overall DAC framework.
Organizations affected by DAC8 should promptly assess the necessary changes in their customer onboarding, communication, compliance, and operational processes. These changes should be implemented with urgency to ensure compliance with the new regulations and requirements.
In conclusion, DAC8 represents a significant step in adapting tax regulations to the digital age. With the ever-increasing relevance of crypto assets, these new rules provide a framework for enhanced transparency and cooperation among EU Member States, ultimately shaping the future of taxation in the region.
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