EU to crack down on crypto tax evasion with new transaction sharing rule

U.S. crypto fans are not happy with the White House proposal to institute a 30 percent crypto mining tax. They are not alone.

European Union (EU) members have agreed to crack down on crypto tax evasion by having member states share digital holdings data.

The Directive on Administrative Cooperation (DAC8) introduced last December is a crypto-tax framework that would increase surveillance of crypto exchanges, marketplaces, and other crypto-related services.

This latest EU crypto effort aims to increase tax transparency in crypto assets and to combat tax evasion and avoidance. Approval of DAC8 which could generate additional tax revenue of around €2.4 billion ($2.62 billion U.S.) for EU member states. This week, it came closer to implementation. 

Benjamin Angel, director for direct taxation, tax coordination, economic analysis and evaluation for the EU, heralded the agreement’s progress on Twitter.

In addition to making cryptocurrency taxation easier, DAC8 complements the Markets in Cryptoassets (MiCA) Regulation adopted on April 20 by the European Parliament, as well as EU efforts to fight money laundering. MiCA will take effect sometime between mid-2024 and early 2025.

DAC8 is expected to be presented to the EU Parliament later this month.

Global crypto tax complexity: One thing crypto shares worldwide is the complexity of taxing its transactions.

Generally, European crypto asset owners who make any profit on their holdings must pay tax. The type of tax depends, however, on which country the crypto asset owner resides, and be either a variable income tax or a fixed capital gains tax.

Some countries also have a holding period, after which the gains are tax-free.

Then there’s the value added tax, or VAT, collected across much of Europe. The European Court of Justice (ECJ) has ruled that transactions with Bitcoin within the EU are exempt from VAT. But the VAT treatment of other cryptocurrencies and related services remains unclear and varies between EU member states.

When DAC8 is formally adopted, all crypto service providers, regardless of whether they are affected by MiCA rules, will be required to disclose transactions to their EU resident clientele.

The new reporting requirements also would extend to e-money and e-money tokens in accordance with MiCA, for both domestic and cross-border transactions.

No more secret crypto transactions: Or, as the European VAT and customs clearinghouse eClear notes, under DAC8 digital holdings soon will no longer be secret. Exchanges and other providers of cryptocurrency services will be obliged to report all transactions of their clients to the authorities of the EU member states.

While this requirement initially sounds like an onerous obligation, eClear says DAC8 could have a positive long-term effect on the cryptocurrency market.

“[T]he improved control and regulation could strengthen investor confidence,” noted eClear. “Until now, cryptocurrencies have been considered untrustworthy due to their anonymity and the lack of state control. However, the new EU regulation could help cryptocurrencies finally make the breakthrough and be accepted as a severe form of investment.”

You can read more on EU crypto tax and regulatory proposals at the European Commission’s DAC8 questions and answers page.

You also might find these items of interest:

• Don’t ignore the Form 1040 digital asset question
• Auditors group latest to call for more crypto oversight in wake of FTX fiasco
• IRS acknowledges crypto is currency in some places, but reiterates it’s not in U.S.

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