On October 17, the Council of the European Union (EU) adopted a directive aimed at bolstering cooperation among national taxation authorities.

This move is a response to the challenges posed by the decentralised nature of crypto-assets, which, until now, has hindered effective tax compliance across member states.

The directive represents a proactive approach toward the evolving digital economy, encompassing comprehensive amendments to EU rules on administrative cooperation in taxation.

Its primary focus is on expanding the scope of registration and reporting obligations, with a specific emphasis on including additional categories of assets and income, notably crypto-assets.

Inclusion of Crypto-Assets in Administrative Cooperation

The directive mandates the automatic exchange of information between tax authorities, requiring reporting crypto-asset service providers to furnish relevant data. This step addresses the inherent cross-border nature of crypto-assets, necessitating robust international administrative cooperation for effective tax collection within the EU.

This legislative response covers a broad spectrum of crypto-assets, encompassing those issued in a decentralised manner, stablecoins, e-money tokens, and specific non-fungible tokens (NFTs). Nadia Calviño, the acting Spanish first vice-president and minister for economy and digitalization, emphasised that the objective is to reach a balanced agreement before the year's end, reinforcing economic and monetary union and fostering sustainable growth and fiscal responsibility.

Evolution of the Directive

The Council's decision follows indications in its report to the European Council in December 2021, expressing expectations for the European Commission to propose legislative revisions in 2022. The proposed changes were agreed upon by the Council on May 16, with the European Parliament providing its opinion on September 13. The unanimous adoption by member states in the Council marks a crucial step in the evolution of the directive.

DAC8 and Automatic Data Exchange

The directive, officially known as the Eighth Directive on Administrative Cooperation (DAC8), introduces mandatory automatic data exchange between tax authorities. This exchange is facilitated by crypto-asset service providers reporting transactions from customers residing in the EU. The scope of the rules has been expanded to cover a range of digital assets, including stablecoins, non-fungible tokens (NFTs), decentralised finance (DeFi) tokens, and earnings from crypto staking.

DAC8 is positioned to complement existing regulations such as the Markets in Crypto Assets Regulation (MiCA) and anti-money laundering rules under the Transfer of Funds Regulation (TFR). The European Commission asserts that these provisions collectively improve member states' ability to detect and combat tax fraud, avoidance, and evasion.

Future Implementation and Impact

EU member states are expected to implement these rules by December 31, 2025, before they officially come into effect on January 1, 2026. The adoption of DAC8 reflects the EU's commitment to creating a comprehensive regulatory framework for the crypto industry, fostering transparency, accountability, and effective tax compliance within the rapidly evolving digital landscape.