We explain the content and significance of the new rules below.
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BACKGROUND
Following the expansion of the internal market, a need for greater cooperation between the tax authorities of the EU member states has arisen. The DAC directives aim to contribute to this by introducing a set of rules for when actors in the member states have a duty to report or disclose information of tax relevance.
One of these areas concerns crypto-assets. While MiCA imposes certain regulatory obligations on entities under the scope of MiCA, MiCA does not provide authority to share data which the entities collect. Thus, tax authorities in, for example, Denmark do not have easy access to data collected by tax authorities in other member states. DAC8, however, addresses this.
DAC8 is a directive that gives member states several powers to cooperate at an intergovernmental level, including to combat tax evasion within the area of crypto-assets.
NEW REGULATION
DAC8 requires providers of crypto-asset services to exchange information with the relevant tax authorities. Thus, providers of crypto-asset services have a duty to report customer information and information about the customer’s transactions to the tax authorities.
The obligations under DAC8 will in practice take place in the following three steps:
- Obliged entities are required to collect information about their users and the users’ transactions. See below for the precise information to be collected.
- Obliged entities must report the collected information to the relevant tax authorities.
- The tax authority that received the information in step 2 above must share the information with the tax authority where the user is domiciled.
WHO IS COVERED BY DAC8?
DAC8 naturally applies to all providers of crypto-asset services within the EU, as defined in MiCA, as well as operators of crypto-assets. The latter should be understood as entities that enable an exchange transaction or transfer of crypto-assets.
In addition, the covered entities will also be entities domiciled outside the EU. These entities must register in one member state to fulfill the obligations in DAC8. In practice, this means that trading platforms like Coinbase and Binance, both domiciled outside the EU, must be registered in an EU member state, after which the trading platforms are obliged to share user and transaction information with the tax authorities in the member state of registration. Subsequently, this member state must share this information with the tax authorities in the countries where the respective users are domiciled.
WHAT INFORMATION IS INVOLVED?
In short, the reporting-obliged providers of crypto-asset services must report the following information about themselves, their users, and the completed transactions:
- About the reporting-obliged providers of crypto-asset services: name, address, tax registration number (TIN number), and the international registration number (LEI code).
- About their users: name, address, country of residence, TIN number, date, and place of birth.
- About the transactions (transfer or exchange to other crypto-assets or fiat currencies): the full name of the crypto-assets, number of crypto-assets, number of transactions, and gross amounts paid and received.
After DAC8, the reporting entities must make real and actual reports. A failure to comply with the obligations is associated with punishment. For example, fines can be awarded to the reporting entities for non-reporting after two reminders, and if a user does not provide the required information after two reminders, the user may not complete the transaction.
Therefore, DAC8 will give tax authorities insight into a significantly larger set of data – both regarding crypto-asset users and transactions with crypto-assets. This will affect both individuals and providers of crypto-asset services. The latter is affected in the form of the above-mentioned obligations, which further lead to the tax authorities being able to compare data submitted by providers of crypto-asset services with the information in the crypto-asset users’ tax returns. This gives the tax authorities a much greater ability to check if the tax returns are correct.
WHEN DO THE RULES COME INTO EFFECT?
The directive entered into force on November 13, 2023, and must be implemented in national law by December 31, 2025, after which it will have effect on the covered entities.
The directive can be found here.
OUR ASSESSMENT
The tax treatment of crypto-assets has largely been limited to the information that taxpayers themselves have shared with the tax authorities. The Danish Tax Agency has several times obtained information from Danish trading platforms (mentioned here), but this access has only been limited to Danish entities. This contrasts with the tax treatment of trading with financial instruments, which to a greater extent is based on third-party reporting at an intergovernmental level.
DAC8 will introduce a set of rules that will ensure a more transparent tax framework, where control cases within tax will to a greater extent be based on automatically reported information from third parties rather than manually shared information from the taxpayer.
If you have any questions about the rules in DAC8, we are of course available to assist.
CONTACT US TODAY
As Denmark’s only specialist cryptocurrency law firm, Samar Law has extensive experience in advising on matters related to cryptocurrency taxation. If you need advice on cryptocurrency taxation, we encourage you to contact attorney-at-law Payam Samarghandi at payam@samarlaw.dk or mobile +4560793777 for a non-binding conversation.
