EU crackdown on crypto

It’s interesting how countries and regions are responding to all of the interest in cryptocurrencies. The European Union is the latest to make a move with DAC8. What’s DAC8? Well, it stands for Directive on Administrative Co-operation.

The European Commission has proposed new tax transparency rules for all service providers facilitating transactions in crypto-assets for customers resident in the EU (DAC8). The rules, which are proposed to come into effect in 2026, will require all service providers, of whatever size and wherever located, to report on cryptoasset 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.

In addition, DAC8 will include additional provisions requiring the reporting of tax rulings for high-net-worth individuals and minimum levels for penalties for non-compliance with the DAC.

Source: Simmons and Simmons

It’s a bit controversial as it covers NFTs (non-fungible tokens) and companies trading cryptocurrencies outside the EU, but on behalf of EU investors. This will be interesting as countries like Cyprus, Malta and even Germany are quite crypto-friendly for investors.

What will the new rules mean?

As far as the crypto-asset and related sectors are concerned, they will be:

• Subject to some limited exceptions, all crypto-asset service providers or operators, irrespective of their size or location, will be required to report on transactions of clients resident in the EU.
• The proposal covers both domestic and cross-border transactions. In some cases, reporting obligations will also cover non-fungible tokens (NFTs).
• Rather like the Common Reporting Standard, it will be necessary to carry out due diligence on crypto-asset users to determine their residence and whether reportable.
• The report will include details of the user and of reportable transactions effected during the previous calendar year and will be made within two months of the end of that year. The first reporting period is expected to be 2026.
• There will then be automatic exchange of the reported information between the relevant authorities.

Going back to the Markets in Crypto-Assets (MiCA) regulation, that regulates professional crypto-asset service providers and requires them to be registered in the EU, non-EU operators that are MiCA regulated will now have to report in the EU member state where they are registered. Non-EU operators that are not MiCA regulated will need to register with an EU member state for DAC8 reporting purposes. Other measures covered in DAC8 include the following:

• An extension of the scope of the automatic exchange of advance cross-border rulings to include those that apply to high net-worth individuals (being who hold a minimum of €1,000,000 in financial or investable wealth, or in assets under management but excluding a main private residence). This will include rulings issued, amended or renewed between 1 January 2020 and 31 December 2025 provided they are still valid on 1 January 2026.
• An extension of the scope of the automatic exchange of information on certain payments to include dividends that are not paid or cashed in a custodial account.
• An extension of the Common Reporting Standard (CRS) requirements to include reporting on e-money and central bank digital currencies.
• Establishing a common minimum level of penalties for the most serious non-compliant behaviour, such as complete absence of reporting despite administrative reminders.
• Improvements to the processes for administrative cooperation among EU Member States.

Source: Harneys

Like the rest of the world, what we are seeing is the EU trying to implement rules where rules don’t work. Cryptocurrencies do not recognise countries or borders. It will be interesting to see how this plays out.