The European Council adopted an updated DAC8 tax directive that expands reporting requirements for crypto-asset transfers. The new rules come immediately after EU Finance Ministers voted unanimously to pass the Markets in Crypto-Assets (MiCA) bill.
EU Finance Ministers reached an agreement on new tax transparency rules for service providers of crypto transfers. The eighth version of the Directive on Administrative Cooperation (DAC8), known as the common approach, is based on the Organisation for Economic Cooperation and Development’s (OECD) crypto reporting framework and is consistent with EU regulations.
DAC8 requires crypto-asset providers to collect information on crypto-asset transfers of any amount and from any source. This information must necessarily show the beneficiary and the recipient’s account number. According to officials, this approach will ensure transparency and traceability of transactions and identify suspicious transactions.
Earlier, EU lawmakers proposed to apply the “travel rule” to track crypto transfers only to transactions over €1,000 made between wallets of crypto-asset service providers. That is, the rules didn’t apply to person-to-person transfers without the providers’ involvement.
The directive thus tightens EU rules on cryptocurrency transfers. According to Elisabeth Svantesson, Minister for Finance of Sweden, the new rules are “bad news” for those who use crypto-assets for illegal activities, circumventing EU sanctions or financing terrorism. In her view, the implementation of the updated European tax directive DAC8 is an important step in the standardization and regulation of cryptocurrencies in Europe. The new regulations will reduce risks and increase confidence in using crypto-assets, as well as simplify cooperation between European countries in the area of taxation.
What’s important to note is that the DAC revisions are being done through consultations among European Council member states, and the directive is a set of procedures for the automatic exchange of tax reporting information between European governments. They don’t require legislative changes.
The approval of DAC8 came after EU Finance Ministers voted unanimously to pass the Markets in Crypto-Assets (MiCA) bill, which establishes regulatory principles and requirements for using cryptocurrencies and related services in the EU.
The vote passed on May 16 and paved the way for final approval of the bill by the European Council and its publication in the Official Journal of the European Union. Then, the MiCA bill will take effect within a year. This means that the new rules and requirements set by MiCA will become fully effective in mid-2024.
MiCA includes several key provisions and components that regulate the use of cryptocurrencies and related services in the European Union:
- Registration and authorization. MiCA establishes registration and authorization requirements for cryptocurrency issuers, exchanges, and wallet providers. This helps ensure the reliability and transparency of cryptocurrency market participants.
- Stablecoin issuers. The legislation provides specific security and risk mitigation requirements for stablecoin issuers. They must meet certain standards to guarantee the stability and reliability of stablecoins linked to certain assets or currencies.
- Crypto custody services. MiCA establishes security and protection standards for cryptocurrency custody services. Providers of such services must take sufficient measures to prevent cybersecurity and operational failures to safeguard their customers’ crypto-assets.
- Combating misuse and manipulation. The MiCA regulations provide a framework for preventing misuse, insider trading, and manipulation within the cryptocurrency market. It establishes standards and requirements to ensure integrity and transparency in the crypto ecosystem.
- Unified market environment. The legislation harmonizes regulatory requirements and operational procedures across the region, helping to reduce fragmentation and build trust in the cryptocurrency market.
- ICO regulation. MiCA includes provisions relating to the regulation of Initial Coin Offerings (ICO). The legislation sets requirements for ICO projects that allow investors to get enough information about the project and protect their interests.
- Legal protections for investors. MiCA provides legal protections for investors and users of cryptocurrency services. It establishes mechanisms for handling and resolving disputes and ensures investors’ rights to information and transparency.
The MiCA bill was tentatively approved by the European Parliament back in July 2022, but the final vote on the bill was repeatedly postponed. The representatives of private payment systems claimed that the bill would restrict business opportunities in the EU.
