European Commission proposes an eighth directive on administrative cooperation (DAC8)
On 8 December 2022, the European Commission published its proposal for an eighth amendment to the directive on administrative cooperation, which deals with various measures to prevent tax fraud, tax evasion, and tax avoidance in the EU, and to strengthen administrative cooperation and exchange of information on tax matters.
One of the factors giving rise to DAC8 is the emergence of alternative means of payment and investment, such as crypto-assets and e-money, which are perceived to undermine the progress made on tax transparency in recent years and pose substantial risks for tax evasion. Thus, in broad terms, the DAC8 proposal will contain provisions on reporting and exchange of information on crypto-asset transactions. DAC8 also introduces other changes to the existing provisions with the aim of closing potential loopholes and to improve the functioning of the rules.
As far as the crypto-asset and related sectors are concerned:
- 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.
These measures to some extent link in with 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 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 CRS reporting 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.
The EU has indicated that these measures could generate additional tax revenues of up to €2.4 billion. The one-off costs incurred for implementing and automatic EU-wide reporting are estimated approximately at €300 million for the totality of reporting crypto-asset service providers and tax administrations, with recurrent costs around €25 million annually.
The principal provisions are required to be implemented by Member States no later than 31 December 2025 with effect from 1 January 2026.