DAC8 and its impact on crypto asset providers
23 May 2023
On the 16th of May 2023, the EU Finance Ministers reached political agreement on a compromise text for a directive introducing tax transparency rules for crypto assets (DAC8).
DAC 8 rules will require reporting as of 2026 by institutions that offer crypto-asset services or electronic money services to customers in the European Union. The expectation is that the Directive will be formally adopted in June. Member States will be required to transpose the main rules into national law by 31 December 2025.
During the ECOFIN of 16 May 2023, EU finance ministers adopted the Regulation on Markets in Crypto-Assets (MiCA) and the Transfer of Funds Regulation (TFR), which aims to traced crypto asset transfers. DAC 8 builds on and borrows from MiCA and TFR with respect to authorizations and certain definitions such as for crypto-asset service providers, crypto-asset services and crypto assets.
Crypto-asset service providers will either be entities that are registered under MiCA (crypto-assets service providers) or entities that provide crypto-asset services under MiCA but are not required to register for MiCA (crypto-asset operators). DAC8 extends the scope of automatic exchange of information under DAC to information that reporting crypto-asset service providers will be required to report on reportable transactions and transfers involving crypto assets and e-money.
The rules impose an obligation on the reporting crypto-asset service provider to collect and verify the information on crypto-asset users in line with due diligence procedures. The reporting crypto-asset service providers are required to report to the relevant competent authority information on the crypto-asset users resident in the EU. The competent authority of the Member State that has received information from the reporting crypto-asset service provider is then required to provide the reported information to the competent authority of the relevant Member State where the reportable crypto-asset user is resident.
Additional rules introduced by DAC8
It is to be noted that DAC8 also introduces the following additional rules, requirements and amendments to previous DACs:
- Introduces provisions on the exchange of advance cross-border rulings concerning high-net-worth individuals, as well as provisions on the automatic exchange of information on non-custodial dividends and similar revenue. The updated compromise text extends the scope of automatic exchange of information regarding advance cross-border rulings to either:
- Advance cross-border rulings concerning and involving the tax affairs of one or more natural persons where the amount of the transaction or series of transactions exceeds €1.5 million, and such amount is referred to in the ruling; or
- Advance cross-border rulings determining the tax residence of a natural person in a Member State.
EU Member States competent authorities are required to automatically exchange information on advance cross-border rulings for natural persons issued, amended or renewed after 1 January 2026.
- DAC8 also amends several other DAC provisions, including on reporting and communication of the Tax Identification Numbers (TINs) to help tax authorities identify relevant taxpayers and correctly assess the related taxes.
- DAC8 also introduces amendments to DAC 6 to addresses a judgment by the Court of Justice of the European Union invalidating reporting requirements introduced in DAC6 that infringe professional privilege. In Flemish Bar Association v. Belgium, C-694/20, the CJEU held that article 8ab(5) of DAC6 partially violates article 7 of the Charter of Fundamental Rights of the European Union. The issue, according to the Court, was that the DAC6 provision requiring attorneys acting as intermediaries in cross-border tax planning arrangements to notify other intermediaries of their reporting obligation violates legal professional privilege. The amended tax now states that “each member state may take the necessary measures to give intermediaries the right to a waiver from ﬁling information on a reportable cross-border arrangement where the reporting obligation would breach the legal professional privilege under the national law of that member state.”
How can BDO help?
BDO Malta can help crypto asset providers comply with DAC8. We can deliver effective and customised solutions that ensure compliance while minimising risks. Contact our tax team at [email protected] to help you manage the crypto industry's changing mandatory reporting landscape.