On 16 May 2023, the Commission welcomed the political agreement reached by EU Finance Ministers on new tax transparency rules for all service providers facilitating transactions in crypto-assets for customers resident in the EU.
Fair and effective taxation is key to securing revenues for public investment and services, while creating a business environment in which innovation can flourish. However, tax authorities currently lack the necessary information to monitor proceeds obtained by using crypto-assets which are easily traded across borders. This severely limits their ability to ensure that taxes are effectively paid, which means European citizens lose important tax revenues.
For our May newsletter interview, we asked Henrik Paulander, the responsible Head of Sector in DG TAXUD’s Administrative Cooperation Unit, to help us understand how the new so-called 'DAC8' rules will help to increase tax transparency in the crypto assets sector.
Why was DAC 8 necessary?
DAC8 was needed for several reasons. Crypto assets are relatively new technology. So it was important to give Member States the tools to get the information that they need to ensure that these new products are treated more or less in the same way as we treat more traditional products, to establish a level playing field and ensure fair taxation.
On the other areas we are touching on, like increasing the use of tax identification numbers, or including rulings for high net-worth individuals, that was done because we noted that there are a number of - let's say loopholes - or things that we would like to improve. So here we found a number of different points which we improved supported by the European Parliament, and the European Court of Auditors, because they had a number of recommendations and we actually took inspiration from that to prioritise our work.
Why is it important to exchange information on crypto assets?
There was no exchange of information before DAC8. It's important even more for crypto assets than for other assets because if you are trading your crypto assets on platforms, this platform will, in most cases, not be in your country of residence. It will be somewhere else. So, if you are doing business, your own tax authorities will not know about it, because they just don't have any information. In fact, some taxpayers may not even know that they must declare this. So this is a system that really puts in place the means to get this information.
What does DAC 8 do, very practically?
A: It means that Member States need to put into place a system that obliges the crypto asset service providers to report on transactions an annual basis. And this reporting is relatively detailed. So both for the investors, the taxpayers, and the platforms will need to make sure that everybody is aware of their obligations and rights and what this entails.
At the moment, for instance, some Member States have pre-filled tax returns, so you get it and the bank has already provided information on your accounts. So you don't need to do anything but confirm whether it's right or not. Basically, tax authorities in some countries like Belgium, or like my country, Sweden, will send your tax papers and say, OK, so you traded the crypto last year, your profits were this and that, and then you need to say if it's correct or not.
So the reporting obligation falls on the platform - not on the citizen?
No, based on the Directive the citizen does not have to do anything, but to be aware. And the platform will also need to tell the taxpayer: ‘we are going to share your information with the tax authorities’. So, what happens and what is important, and we’ve actually seen this happening, is that when people know that the information is going to be reported, they declare it themselves based on national obligations and procedures.
What challenges did you face?
Challenging was the fact that this is new. The fact that there was not very much information available, neither statistics nor studies, and specifically in relation to taxation. So for us to say how much tax will this bring was quite a new exercise and it was very interesting because we got help from the EU’s Joint Research Centre (JRC) to produce an estimate of what could be the outcome of getting the information and then applying national tax measures. This was very novel and very interesting. And I think the JRC were proud too because this was the first in the world. Nobody had done this before. We also had to understand all these different types of crypto assets and the different steps in how they are being used because this has an effect on taxation and reporting for tax purposes.
We had parallel legislation in the EU. We had the MICA regulation and we had new anti-money laundering provisions. They had not been finalised when we started our work so we had to wait for the final agreement, but we also had to continuously adapt to the amendments and be very much in line with the definitions. This was also difficult.
The third point was the international dimension, because the challenge was to make sure that the EU framework and the OCD framework work together so that Member States get the information they need. Also, in cases where service providers are outside the EU, the tax authorities need to obtain the information. So should we use the OECD rule or the EU rules? We had to try to find the right solution. I think in the end we made sure we got a good result for tax authorities, but also for the platforms.
So you're proud of the result?
Yes, we are proud and happy with the result. I always think that there are still things left to do, and this is part of the challenge. We need to accept that this is a developing market that we need to constantly keep track of for new developments.
Details
- Publication date
- 31 May 2023
- Author
- Directorate-General for Taxation and Customs Union