DAC8 adopted

The EU Council has adopted a directive amending EU rules on administrative cooperation dealing with the reporting and automatic exchange of information in relation to transactions in crypto-assets: Council directive amending directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8).

DAC8 will impose new tax transparency rules for all service providers facilitating transactions in crypto-assets for customers resident in the EU. The rules, which will come into effect in 2026, will require all service providers, of whatever size and wherever located, to report on crypto-asset 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. For more details of MiCA, see our article Mastering MiCA.

In addition, DAC8 includes provisions requiring the reporting of additional tax rulings.

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.

As a result, in 2022 the EU Commission put forward proposals to extend the EU Directive on Administrative Co-operation (DAC) to transactions in crypto-assets. For more details, see our earlier article.

DAC8

DAC8 is the latest of a number of Directives to expand the scope of the 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.

DAC8 will require 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).

For these purposes, "reportable crypto-assets" means any crypto-asset (as defined in EU Regulation 2023/1114), other than a Central Bank digital currency, electric money or any crypto-asset which cannot be used for payment of investment purposes.

The information that crypto-asset service providers will be required to report is extensive. For example, with regard to a reportable (EU) user, they will need to report: name, address, TIN, EU Member State of residence, and date and place of birth. With regard to reportable crypto-asset transactions (transfer, or exchange): full name of the crypto-assets, gross amounts paid and received, number of units, number of transactions, and fair market value. Clearly, in order to collect and report this information, it will be necessary for crypto-asset service providers to put in place effective due diligence procedures.

It is notable that DAC8 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 DAC8 is essentially limited to unregulated providers outside the EU and there must be doubts about its effectiveness in this context.

Tax rulings

The 2022 proposal for exchange of tax rulings for high net worth individuals has been changed. Under the final Directive, DAC8 extends the scope of automatic exchange of information regarding advance cross-border rulings to: advance cross-border rulings concerning and involving the tax affairs of individuals where the amount of the transaction or series of transactions exceeds €1.5 million; and advance cross-border rulings determining the tax residence of an individual in a Member.

Next steps

The directive was adopted by Member States, by unanimity on 17 October 2023. It will now be published in the Official Journal and enter into force on the twentieth day following that of its publication. Member States have until 31 December 2025 to transpose the main rules into national law. The new rules will generally apply with effect from 1 January 2026.

As tax authorities obtain more data on crypto-asset transactions via DAC8, it can be expected that they will increasingly use that information to enforce compliance with the tax rules dealing with such assets. For this, of course, it is important that tax authorities should provide clear guidance on the tax treatment of transactions in crypto-assets, which is certainly not always the case at present. 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.