Source: TaxDAO
In order to adapt to the changing financial environment, in December 2022, the European Commission proposed to establish a reporting framework that requires crypto asset service providers to report transactions of EU customers. In May 2023, EU finance ministers reached a political agreement, and in October of the same year, EU member states formally adopted Directive 2011/16/EU on administrative cooperation in the field of taxation, or DAC8, which introduced comprehensive tax transparency rules for crypto assets and expanded cooperation between member state tax authorities.
According to the regulations, EU member states must transpose the main DAC8 rules into national laws by December 31, 2025, and the new regulations will apply from January 1, 2026. However, there are two exceptions: the provisions related to identity services should be transposed into national laws by January 1, 2024 and implemented on January 1, 2025. The provisions related to TIN verification should be transposed into national laws by December 31, 2027 and apply from January 1, 2028.
The main content of DAC8
DAC8 requires cryptocurrency companies to report information held by customers and allows tax authorities to share personal cryptocurrency holdings data, which means that all crypto asset service providers located in the EU, regardless of their size, must report transactions of customers residing in the EU. The amendments mainly involve the reporting and automatic exchange of information on certain income from crypto asset transactions, as well as providing advance tax rulings for high net worth individuals. The directive strengthens the existing legislative framework by expanding the scope of registration and reporting obligations and improving overall administrative cooperation between tax authorities, aiming to prevent assets from being hidden overseas using cryptocurrencies and enhance the ability of EU member states to detect and combat tax fraud, tax avoidance and tax evasion.
The latest progress of DAC8
A few EU countries have already carried out the domestication of the DAC8 bill. It is reported that the Spanish Ministry of Finance is making legislative reforms to the General Tax Code to allow the Spanish Tax Bureau to identify and take over crypto assets owned by taxpayers holding overdue debts. Spanish residents who hold any crypto assets on non-Spanish platforms must report to the tax authorities by the end of next month, but only individuals with a balance sheet of more than €50,000 (about $54,000) in crypto assets are obliged to report their foreign holdings. On March 25, 2024, the Czech Republic government announced a draft bill to amend the Act on International Tax Cooperation and Other Related Acts to advance the domestication of DAC8. The bill requires crypto asset service providers to automatically exchange information on cryptocurrency asset transactions, including advance tax rulings by digital service providers for high net worth individuals or DAC8. On March 21, 2024, the Slovakia Ministry of Finance solicited opinions on the DAC8 bill and initiated the inclusion of DAC8 into domestic law. However, few countries have implemented the relevant bills. Before the bill is implemented, crypto institutions still have time to carry out internal reforms to adapt to the requirements of DAC8, and investors must also be prepared to face the impact of DAC8.
How does DAC8 relate to crypto assets?
DAC8 expands the scope of automatic exchange of information to crypto assets and electronic currencies, and applies to financial institutions in electronic currencies and central bank digital currencies (CBDCs). Crypto-asset service providers shall collect information annually and report to the tax authorities of the member states of residence, authorization or registration, including information about the crypto-asset provider itself, reportable users and transactions of reportable crypto-assets. In addition, the tax authorities will share the information reported locally with the tax authorities of the user's residence through the EU common communication network.
DAC8 incorporates the concept of electronic money into the CRS framework by revising the definitions of "depository institution" and "deposit account", and includes entities holding electronic money, products or central bank digital currency in the scope of reporting financial institutions under CRS.
DAC8 expands the information that needs to be reported. The reporting requirements under DAC2/CRS have been expanded to include reporting on the role of the reporter as a controller or equity holder, and financial institutions will need to collect or assess relevant information about customers. In addition, newly classified financial institutions will be required to collect and review their customers' self-certification from the date the change takes effect: ① Whether the account is a joint account, including the number of joint account holders ② Account type ③ Whether the account is an existing account or a new account.
DAC8 also introduces the exchange of information related to cross-border advance rulings on high net worth individuals (i.e. individuals whose transactions covered by the ruling exceed €1.5 million) issued, modified or renewed after 1 January 2026. The competent authorities of the Member States shall automatically exchange information on the following categories of cross-border advance rulings issued, modified or renewed after 1 January 2026:
Advance cross-border rulings on tax matters involving and concerning one or more natural persons where the amount of a transaction or series of transactions exceeds €1.5 million and such amount is mentioned in the ruling.
Advance cross-border rulings determining the tax residence of a natural person in a Member State.
DAC8 expands the scope of the existing rules on the exchange of tax-related information, including provisions on the automatic exchange of information on non-custodial dividends and similar income, supplementing the existing provisions of the DAC. It also expands the scope of application of the DAC in relation to VAT, other indirect taxes, customs duties, anti-money laundering measures and provisions to help combat the financing of terrorism. In addition, DAC8 also proposes the possibility of using the exchanged information without the permission of the member states. Member states should send information for the purposes covered by the act based on Article 215 of the Treaty on the Functioning of the European Union and share it with the competent authorities of the member states responsible for restrictive measures for this purpose to prevent violations of sanctions.
DAC8 strengthens the reporting and communication of TINs. The Commission will provide member states with tools to allow automatic electronic verification of taxpayer identification numbers provided by reporting entities or taxpayers for automatic exchange of information. At the same time, member states will work to ensure that reporting entities are allowed to obtain electronic confirmation of the validity of taxpayer identification codes within the scope of DAC1, DAC2, DAC3, DAC4, DAC6, DAC7 and DAC8.
DAC8 is a consensus reached by EU countries to build a more comprehensive and transparent tax system, marking a major step forward in the EU's regulation of rapidly developing cryptocurrencies. Although it will still take some time, as countries gradually promote the domestication of DAC8 laws, DAC8 will also be officially applied in cryptocurrency regulatory practices.
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