DAC8: reporting rules on crypto-asset transactions

Update: DAC8 was adopted in October 2023. For more details see our article DAC8 adopted.

The European Commission has proposed new tax transparency rules for all service providers facilitating transactions in crypto-assets for customers resident in the EU (DAC8). The rules, which are proposed to come into effect in 2026, will require all service providers, of whatever size and wherever located, to report on cryptoasset transactions carried out by clients residing in the EU. It will also require financial institutions to report on e-money and central bank digital currencies.

DAC8 is designed to complement the recently implemented Markets in Crypto-assets (MiCA) Regulation and anti-money laundering rules. These rules will provide the conditions for access to the EU market for cryptoassets, replacing existing national rules governing issuance, trading and custody of such assets.

In addition, DAC8 will include additional provisions requiring the reporting of tax rulings for high-net-worth individuals and minimum levels for penalties for non-compliance with the DAC.

Background

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 on transactions in crypto-assets. The OECD recently published a its Crypto-Asset Reporting Framework (CARF) and amendments to the OECD Common Reporting Standard (CRS). These are designed to apply the principles of the CRS to crypto-assets and contain similar model rules and commentary to the CRS, which can be enacted in domestic legislation. For further details on these see our article.

DAC8

DAC8 is the latest of a number of Directives to expand the scope of the EU Directive on Administrative Co-operation (DAC). The proposed expansion aims to ensure consistent application of crypto-asset reporting rules across the EU, in line with the OECD CARF initiative, but includes additional elements going beyond CARF.

The DAC8 proposal will contain the following elements designed to improve the ability of Member States to detect and counter tax fraud, tax evasion and tax avoidance by:

• requiring all reporting crypto-asset service providers, irrespective of their size or location, to report transactions of clients residing in the EU. The proposal covers both domestic and cross-border transactions. In some cases, reporting obligations will also cover non-fungible tokens (NFTs).
• requiring financial institutions to report on e-money and central bank digital currencies.
• extending the scope of the automatic exchange of advance cross-border rulings for high-net-worth individuals. The persons concerned are those who hold a minimum of €1m in financial or investable wealth, or in assets under management. These exclude the individual's main private residence. Member States will exchange information on the advance cross-border rulings issued, amended or renewed between 1 January 2020 and 31 December 2025.
• establishing a common minimum level of penalties for the most serious non-compliant behaviour, such as complete absence of reporting despite administrative reminders.

It is notable that the DAC8 proposal will require the reporting of information even by service providers not established in the EU, where their customer is based in the EU. This element is clearly designed to ensure that there is no advantage for such service providers to move outside the EU to avoid reporting obligations. However, given that the MiCA regulations require crypto-asset service providers offering their services to EU customers to be authorised and established within the EU, the non-EU scope of the DAC8 proposal is essentially limited to unregulated providers outside the EU and there must be doubts about its effectiveness in this context.

Next steps

The draft text will be submitted to the European Parliament for consultation and to the Council for adoption. It is expected that the new reporting requirements with regard to crypto-assets, e-money and digital currencies will enter into force on 1 January 2026.

Further information can be found on the EU Commission website: Q&As: DAC8.

To see our comparison of the tax treatment of transactions in crypto-assets across eight jurisdictions – UK, France, Germany, Italy, Spain, the Netherlands, Ireland and Luxembourg – see our Tax on Cryptocurrency feature.