EU member states have unanimously agreed to update the Directive on Administrative Cooperation (DAC) with the proposed DAC8 regulations. The amendments will enable EU institutions to increase surveillance over the crypto market and impose minimum penalties for non-compliance, closing loopholes and improving enforcement against tax evasion, avoidance, and fraud.
The key measures include extending reporting requirements for all reporting crypto-asset service providers, obliging financial institutions to report on electronic money and central bank digital currencies, and establishing a minimum penalty for non-compliance incidents.
These new regulations will effectively increase surveillance of crypto platforms as the reporting requirements affect crypto businesses regardless of size or location. The update will also expand the reporting and exchange of information between tax authorities within the EU to cover income or revenue generated by users residing in the EU while operating with crypto-assets. The reporting obligations have been harmonized across the EU, becoming more rigorous, and introducing a minimum level of financial responsibility for those who fail to meet the obligations.
MiCA, the Markets in crypto-assets regulation, was recently approved by the European Parliament and standardized the provision of crypto services across the EU, including the issuance of cryptocurrencies and stablecoins. However, MiCA doesn’t include provisions enabling tax authorities to collect and exchange tax-related information concerning cryptocurrency income, and DAC8 fills in that gap, being aligned with the legal definitions laid out in MiCA.
DAC8 is consistent with two other sets of financial reporting regulations: the Crypto-Asset Reporting Framework (CARF), a new global tax transparency framework recently approved by the OECD, and the proposed amendments to the Common Reporting Standard (CRS), the G20-requested and OECD-approved single global standard for the collection, reporting, and exchange of financial account information.
EU’s efforts to regulate the cryptocurrency industry may come at a cost to innovation and privacy, as MiCA has already been criticized for its one-size-fits-all approach that neglects unique features of decentralized systems and infringes on privacy with extended requirements to collect sensitive personal data. However, the update to DAC brings more standardization across the EU and increases surveillance over the crypto market, enhancing the detection and countering of tax misdemeanors and crime.