On May 10, Benjamin Angel, the Director for direct taxation, tax coordination, economic analysis, and evaluation of the European Commission announced that European Union (EU) members unanimously approved the Directive of Administrative Cooperation (DAC8). It will help enable European Union institutions to increase monitoring of the crypto markets and impose minimum penalties for not complying with existing laws.
According to reports, the update will be adopted by the Economic and Financial Affairs Council (ECOFIN) next week. For those who are not aware, in December 2022, the DAC proposed to improve the shortcomings and increase the efficiency related to tax evasion, tax avoidance, and fraud.
The anti-tax avoidance measures aim to enhance detecting and countering tax misdemeanors and crime. It contains several other measures like extending reporting requirements for all crypto asset providers. Also, anti-tax avoidance doesn’t differentiate between geographical locations and will cover both domestic and international domains. Additionally, it will require financial firms to report on digital currencies issued by central banks and electronic currency.
There are many provisions taken by DAC to avoid tax evasion and fraud. It extended the scope of automatic exchange of advance cross-border rulings for high net worth persons. High net worth individuals mean persons holding €1.000.000 which excludes mainland residents. Also, a minimum penalty for habitual offenders and non-compliance incidents. Noncompliance incidents include such as ignoring reporting regulations despite regular reminders.
On the question of how the DAC8 affects businesses, the European Commission said that it will have minimal impact on small and medium businesses. Additionally, it will increase surveillance on crypto platforms because the reporting requirements affect the crypto companies regardless of location and business size. Also, the upgrade will “expand the reporting and exchange of information between tax authorities within the EU to cover income or revenue generated by users residing in the EU while operating with crypto-assets.”
The EU members have done a commendable job by raising their voices against tax evasions and tax fraudsters. These new financial reporting norms will provide more clarity toward the management of crypto in the region. It will be interesting to see the impact of these rules in the upcoming times.