DAC8 is the consensus reached by the EU countries to build a more comprehensive and transparent tax system.
Author: TaxDAO
In order to adapt to the ever-changing financial environment, in December 2022, the European Commission proposed to establish a reporting framework, requiring cryptocurrency service providers to report transactions of EU customers. In May 2023, EU finance ministers reached a political agreement, and in October of the same year, the EU member states officially adopted Directive 2011/16/EU on administrative cooperation in the field of taxation, namely DAC8, which introduced comprehensive tax transparency rules for cryptocurrencies and expanded cooperation between tax authorities of member states.
According to the regulations, EU member states must transpose the main rules of DAC8 into national law by December 31, 2025, and the new regulations will take effect from January 1, 2026. However, there are two exceptions: the provisions related to identity verification services should be transposed into national law by January 1, 2024, and implemented from January 1, 2025. The provisions related to TIN verification should be transposed into national law by December 31, 2027, and applied from January 1, 2028.
Main Contents of DAC8
DAC8 requires cryptocurrency companies to report information on customer holdings, allowing tax authorities to share data on individual cryptocurrency holdings. This means that all cryptocurrency service providers in the EU, regardless of their size, must report transactions of EU residents. The amendments mainly involve reporting certain income from cryptocurrency transactions and automatic exchange of information, as well as providing pre-tax rulings for high-net-worth individuals. The directive aims to strengthen the existing legislative framework by expanding the scope of registration and reporting obligations and improving overall administrative cooperation between tax authorities, with the goal of preventing assets from being hidden overseas using cryptocurrencies and enhancing the ability of EU member states to detect and combat tax fraud, evasion, and avoidance.
Latest Developments of DAC8
A few EU countries have already begun the domestication of the DAC8 legislation. It has been reported that the Spanish Ministry of Finance is legislating reforms to the "General Tax Law" to allow the Spanish tax authorities to identify and take over the cryptocurrency assets held by taxpayers with overdue debts. Spanish residents holding any cryptocurrency assets on non-Spanish platforms must report to the tax authorities by the end of next month, but individuals with assets exceeding the equivalent of 50,000 euros (approximately $54,000) in cryptocurrency are obligated to report their foreign assets. On March 25, 2024, the Czech Republic government announced a draft amendment to the "International Tax Cooperation and Related Acts" to advance the domestication process of DAC8. The bill requires cryptocurrency service providers to automatically exchange information on cryptocurrency asset transactions, including digital service providers for high-net-worth individuals or pre-tax rulings under DAC8. On March 21, 2024, the Slovak Ministry of Finance initiated a consultation on the incorporation of DAC8 into domestic law. However, few countries have implemented the relevant legislation. Before the legislation is implemented, cryptocurrency institutions still have time to make internal reforms to adapt to the requirements of DAC8, and investors must also be prepared for the impact of DAC8.
How Does DAC8 Relate to Cryptocurrencies?
DAC8 expands the scope of automatic exchange of information to include cryptocurrencies and electronic currencies, applicable to financial institutions in the field of electronic currencies and central bank digital currencies (CBDCs). Cryptocurrency service providers are required to collect information annually and report to tax authorities in member states where residents, authorized, or registered users are located, including information about the cryptocurrency service providers themselves, reportable users, and reportable cryptocurrency transactions. In addition, tax authorities will share locally reported information with tax authorities in the residence of the users through the EU common communication network.
DAC8 revises the definitions of "deposit-taking institutions" and "deposit accounts" to include the concept of electronic currencies in the CRS framework, bringing entities holding electronic currencies, products, or central bank digital currencies within the scope of reporting financial institutions under CRS.
DAC8 expands the information to be reported. Reporting requirements under DAC2/CRS have been expanded to include reporting on the role of the reporter as a controller or shareholder, and financial institutions will need to collect or assess relevant information about their customers. In addition, newly classified financial institutions will be required to collect and review self-certifications of their customers from the date of the change: ① whether the account is a joint account, including the number of joint account holders ② account type ③ whether the account is an existing account or a new account.
DAC8 also introduces information exchange related to cross-border tax rulings for high-net-worth individuals (i.e., individuals whose transactions covered by the ruling exceed 1.5 million euros) issued, modified, or renewed after January 1, 2026. The competent authorities of member states should automatically exchange information on the following categories of cross-border advance rulings issued, modified, or renewed after January 1, 2026:
The amount of a transaction or a series of transactions exceeds 1.5 million euros and this amount is mentioned in the ruling concerning tax matters involving one or more natural persons.
Determination of the tax residence of a natural person in a member state in a cross-border advance ruling.
DAC8 expands the scope of existing rules on the exchange of tax-related information, including provisions on the automatic exchange of information on non-custodial dividends and similar income, supplementing the existing provisions of DAC. It also expands the application of DAC in the areas of value-added tax, other indirect taxes, customs duties, anti-money laundering measures, and assistance in combating the financing of terrorism. In addition, DAC8 also raises the possibility of using exchanged information without the permission of member states. Member states should send information based on the purposes covered by Article 215 of the Treaty on the Functioning of the European Union and share it with the competent authorities responsible for restrictive measures in order to prevent violations of sanctions.
DAC8 strengthens the reporting and communication of TIN. The Commission will provide tools for member states to allow for the automatic electronic verification of taxpayer identification numbers provided by reporting entities or taxpayers for the purpose of automatic exchange of information. At the same time, member states will strive to ensure that reporting entities are allowed to obtain electronic confirmation of the validity of taxpayer identification codes within the scope of DAC1, DAC2, DAC3, DAC4, DAC6, DAC7, and DAC8.
DAC8 represents the consensus reached by the EU countries to build a more comprehensive and transparent tax system, marking a significant step for the EU in regulating the rapidly developing cryptocurrency sector. While it will take time, with the gradual progress of the domestication of DAC8 laws in various countries, DAC8 will also be officially applied in cryptocurrency regulatory practices.
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