EU to Make Crypto Companies Report Tax Details to Authorities

New OECD-inspired tax evasion plans take a step further than the MiCA but haven’t settled how to deal with foreign providers

AccessTimeIconDec 8, 2022 at 12:53 p.m. UTC
Updated Dec 8, 2022 at 5:31 p.m. UTC

The European Commission plans to make crypto companies report user holdings to tax authorities, it said Thursday. But the European Union (EU) body says it’s still working on how to enforce the measures on wallet providers or exchanges based outside the bloc.

As previously reported by CoinDesk, the proposed new tax rules, known as the eighth Directive on Administrative Cooperation, or DAC8, seeks to halt billions of euros in evasion by taxpayers stashing crypto abroad.

“Anonymity means that many crypto-asset users making significant profits fall under the radar of national tax authorities. This is not acceptable,” Paolo Gentiloni, EU commissioner for tax, said in a statement.

When asked how the EU will enforce the measures on companies outside the bloc, Gentiloni told reporters, “We will work on that. What counts for us is that EU residents are targeted by these measures,” even if they use crypto providers from elsewhere, he said.

Gentiloni’s measures would further the EU’s Markets in Crypto Assets Regulation (MiCA), which allows foreign companies to gain EU clients using a procedure called reverse solicitation.

The tax plan requires any company with EU clients to register and report within the bloc, but may face logistical challenges in a sector where companies are largely online and sometimes claim not to have headquarters at all.

The widely touted plans, which will also apply to some providers of non-fungible tokens (NFT), have drawn immediate reactions from industry observers.

In a statement, the European Crypto Initiative said of the plan that it was “concerned that it would apply to a far wider range of obliged entities and individuals” than MiCA, which the lobby group said meant “diluting MiCA's initial concept and potentially weakening its effect.”

Others have been more calm over the plans, noting that the 38 developed countries in the Organization for Economic Co-operation and Development (OECD) have already developed norms to stop tax being evaded in overseas bank accounts, which they now want to spread to crypto.

“Exchange of information across borders already happens in the tax world and authorities are keen to expand the scope of these data sharing arrangements to crypto asset transactions,” Danny Talwar, head of tax at Koinly, told CoinDesk in a statement.

Dea Markova, managing director at Forefront Advisers, told CoinDesk that the plan “stands to touch global players who may have otherwise avoided the need to get licensed.”

“An ‘EU crypto tax’ is not on the cards,” Markova said, with any tax law needing unanimous agreement of 27 finance ministers. However, he added that, politically speaking, “it will be difficult to argue that the proposal should be any less expansive in scope or granularity than it is.”

The commission believes its new plans will generate as much as 2.4 billion euros ($2.5 billion) for national coffers by making crypto tax evasion harder. Any loophole for foreign providers could mean tax goes missing, with registered EU companies disadvantaged.


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Jack Schickler

Jack Schickler was a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.