DAC8 adopted by EC to harmonise EU tax reporting by e-money and cryptocurrency intermediaries
The European Commission (EC) has published on 8 December 2022 a new proposed Directive on Administrative Cooperation covering tax reporting on cryptocurrencies (‘DAC8’).
It will aim to harmonise reporting for service providers harmonising digital currency transactions, including annual reports from crypto exchanges / marketplaces. This will improve transparency on tax liabilities, helping identify income and taxable gains. It will also provide efficiencies for taxpayers and authorities via consistent information requirements across the 27 member states.
The EU VAT crypto-asset review is underway now. DAC8 was part of the original EU Tax Action Plan of 2020, with over 20 measures to improve the efficacy of the EU tax regime. DAC7 marketplace tax reporting enters into place next year.
Following a public consultation in 2021, the draft DAC8 will be published before year end. This comes as the EU is drawing up a single licensing regime in the form of the Markets in Crypto-Assets (MICA) regulation.
DAC8 reporting requirements
DAC8 proposal will 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 €m 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.
The Organisation for Economic Co-operation and Development (OECD) is also in the process of creating a crypto-asset reporting framework (CARF).
VAT on cryptocurrencies
|Crypto-assets||Payment, security or utility tokens||Treated as currency|
|Creation of tokens||Mining or forging||Out of scope of VAT|
|Supplies free of charge||Airdrop||Out of scope of VAT|
|Supplies for consideration||Taxable; but exempt|
|Storage and transfer||Hot or cold digital wallets||Taxable; but exempt|
|Exchange for crypto-assets or cryptocurrencies||Taxable; but exempt|
|Cryptocurrencies as consideration for supply||Taxable; VAT due|
|Token modification||Modifications, forks or splitting of tokens||Out of scope of VAT|