Tax transparency rules for crypto-asset transactions

The crypto market, whilst relatively new, has grown in importance over the years and radically changed the world of payments and investments. On 8 December 2022, the European Commission proposed to set up a reporting framework which would require crypto-asset service providers to report transactions made by EU clients. This would help tax authorities to track the trade of crypto-assets and the proceeds gained, thereby reducing the risk of tax fraud and evasion. The Commission estimates the introduction of an EU crypto-asset reporting framework could raise additional tax revenue between €1 and €2.4 billion per year.

The reporting framework would be set up by amending the Directive on Administrative Cooperation (DAC). As the name suggests, the directive does not deal with the charging and payment of taxes itself, but rather allows for the collection and exchange between Member States of tax-related information about individuals and companies. On the subject of penalties for instance, the DAC provides that penalties should be “effective, proportionate and dissuasive”, but leaves the exact nature and size of the penalties and its implementation to the Member States.

The proposed directive puts forward measures to exchange information on crypto-asset transactions and also includes a number of other changes to address inefficiencies or close potential loopholes in the DAC. The proposal deals exclusively with the reporting of information and does not oblige Member States to impose a minimum level of taxes on the transactions. The proposed directive identifies two types of entities that would be obliged to report information to the local authorities, “crypto-asset providers” and “crypto-asset operators” (jointly RCASPs). In terms of whose transactions are reportable, the directive would require information to be reported on individuals or entities, resident in the EU Member States that are customers of the RCASPs. The type of crypto-assets that need to be reported are all crypto-assets that can be used for investment and payment purposes.

According to the proposal, Member States shall adopt and publish by 31 December 2025 at the latest the laws, regulations and administrative provisions necessary to comply with the amended DAC, and these provisions shall apply from 1 January 2026.