02. August 2023 On May 16th 2023, the EU Member States agreed in the Economic and Financial Affairs Council (ECOFIN) on an extension of the Directive on Administrative Cooperation for the exchange of information on crypto-assets and advance tax rulings for individuals (DAC8). The aim is to ensure fair taxation of digital assets. The automatic exchange of information on crypto-assets was previously excluded and made more difficult by the anonymous nature of these assets.
Major changes
The agreed text is largely in line with the original proposal of the EU Commission. One important point is the deletion of a common system of minimum penalties for serious infringements, which was foreseen for both existing and proposed disclosure obligations. Instead, member states can now decide on the level of penalties themselves.
Who has to report the tax information?
The reporting obligation affects all crypto-asset service providers (CASPs) operating in the EU. And this is regardless of whether they fall under the Markets in Crypto-Assets Regulation (MiCA) or not. It also applies to crypto-assets and e-money. A crypto-asset service provider is a legal person or an undertaking whose profession or activity is to provide one or more crypto-asset management services to third parties on a professional basis.
Crypto-asset service providers covered by the MiCA regulation must obtain self-certification forms from their clients, verify and report certain information to the competent authorities. Subsequently, the recipient member state exchanges this information with the financial administration of the state in which the user pays his taxes. These rules are largely similar to the OECD’s Crypto-Asset Reporting Framework (CARF) and are aligned with the definitions of the MiCA Regulation.
If the required information is not provided to the crypto-asset service provider within 60 days after two reminders following the initial request by the reporting crypto-asset service provider, the crypto-asset service provider must block the execution of exchange transactions.
The information collected and verified shall be submitted no later than January 31st of the year following the relevant calendar year or other appropriate reporting period in which the reportable transaction took place.
What information needs to be reported?
The general personal data as well as the tax identification number must be reported. In addition to the number of transferred units and transactions, the fair market values must also be reported. If crypto assets are exchanged for nominal money, the total value over the year to be reported must also be stated.
Penalties
It was originally planned that Member States would introduce minimum penalties for serious infringements that would apply to all existing reporting obligations. The level of penalties was to depend on the type of infringement, the turnover of the non-reporting company and whether it was a company or a natural person. These penalties were envisaged for the following cases:
- Non-registration after two reminders
- incomplete or incorrect information that accounts for more than 25 % of the total data to be reported.
As Member States could not agree on a framework for minimum penalties, the exact design of the penalties is left to the individual Member States, but they should be effective, proportionate and dissuasive.
The fines proposed by the EU Commission range from €50,000 to €150,000, depending on the severity of the violation. However, the EU member states can go beyond this.
Wealthy individuals
In addition to this reporting obligation, DAC 8 also extends the automatic exchange of cross-border tax rulings for wealthy individuals.
An advance tax ruling is a written statement by a tax authority setting out in advance how tax (income tax, corporation tax, etc.) will be calculated and which tax rules will be applied.
This refers to tax assessments issued specifically to wealthy individuals. This concerns persons who have financial or other fixed assets of at least 1 million euros, excluding their main residence.
Notification of tax identification number
It also introduces new rules on the collection and exchange of tax identification numbers. Member States must ensure that
- the tax identification number is reported under the automatic exchange of information for certain categories of income and capital subject to the mandatory automatic exchange of information (DAC 1).
- the tax identification number is included in the exchange of information in the case of advance cross-border rulings and advance agreements (DAC 3), country-by-country reports (DAC 4) and reportable cross-border tax arrangements (DAC 6). This requirement already applied to intermediaries and relevant taxpayers, but the proposed amendments extend it to any other person in an EU Member State who may be affected by the reportable cross-border arrangement.
The deadline for implementing these requirements has been extended
- for the income and capital categories subject to information exchange until January 2030
- for the other exchange categories mentioned above until January 2028.
Current status and entry into force
The text has been agreed by the EU Council and will be formally adopted once the EU Parliament has given its opinion. The proposed amendments are provisionally due to be adopted by the Parliamentary Committee on Economic and Monetary Affairs on May 30th 2023. The Working Party on Fiscal Affairs considered the proposed amendment on July 4th 2023. The final vote in Parliament is expected to take place after the summer break. EU member states must transpose the directive into national law by 31 December 2025 at the latest and apply the provisions of the directive from January 1st 2026.
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