EU agree on new tax transparency rules for cryptocurrency service providers

The EU Finance Ministers have reached an agreement on new tax transparency rules for all cryptocurrency service providers based in the EU. The tax transparency rules for cryptocurrency transactions (DAC8) require cryptocurrency service providers to report transactions of clients residing in the EU, and it is proposed earlier in 2022. The rules are consistent with the Markets in Crypto-assets (MiCA) and transfer in funds Regulation (TFR) and follow the OECD Crypto-Asset Reporting Framework.

DAC8 serves a different purpose than MiCA. MiCA regulates and authorizes cryptocurrency service providers established in the EU. However, some operators are not covered by it, and MiCA does not enable tax authorities to collect and exchange the necessary information for taxing cryptocurrency income. DAC8 applies to all cryptocurrency service providers and operators with users in the EU. It covers businesses that provide services to EU residents, regardless of their location, and requires reporting of information for both regulated and unregulated cryptocurrency service providers and operators. As mentioned in the statement: ‘DAC8 is also consistent with the recently approved OECD Crypto-Asset Reporting Framework (CARF), as well as the amendments to its Common Reporting Standard. These standards have also been endorsed by the G20. This initiative aims at introducing greater tax transparency on crypto-assets’.’

The need for this regulation arises because effective taxation is important for public investment, services and business innovation. However, tax authorities are unable to monitor cryptocurrency profits for taxation purposes, resulting in a loss of revenue.

The Directive aims to improve UE’s ability to detect and counter tax fraud through more reporting obligations and automatic exchange of information on advance cross-border rulings used by individuals. The updated Directive also includes financial institutions’ reporting obligations regarding e-money and the central bank digital currencies (CBDC)

The new reporting rules for cryptocurrencies, e-money, and central bank digital currencies will be enforced from 1 January 2026, after the consultative opinion of the European Parliament.