DAC8, the European directive on the taxation of digital assets
EU regulation
In 2011, the European Union introduced the "Directive on Administrative Cooperation" (DAC) aiming to establish a collaborative framework among member state authorities for sharing tax-related information. This directive is applicable to conventional financial entities such as banks and insurance companies, but they do not include crypto-asset service providers. In light of this situation, regulatory bodies are discussing how to oversee and regulate the crypto-asset market.
The DAC-8 directive is being studied and aligns with MiCA (Market in Crypto Assets) regulation since it adopts the same definitions and the obligation for digital asset service providers (CASPs) to obtain authorization to manage crypto assets.
The aims of DAC-8 are multiple:
Enforce reporting requirements for all crypto-asset service providers (CASP)
It aims to propose a system inspired by the "Common Reporting Standard" (CRS), which provides countries with information on the ownership and income from financial assets held by their tax residents with foreign financial institutions. It will achieve this by setting up a new global tax transparency framework called the Crypto Asset Reporting Framework (CARF).
Ensure the transparency of transactions employing crypto assets.
Thanks to the automatic exchange of information within the taxpayers' jurisdictions of residence On an annual basis and in a standardized manner, providers will have to declare to the tax authorities in their jurisdiction:
Information on the identity of their customers and the beneficiaries of transactions,
Information on the nature of transactions (date, amount, type of crypto asset involved, etc.).
This means that when a cryptocurrency transaction occurs, it will be reported to the transaction owners’s state of residence by the platforms, and the tax authorities will be notified.
DAC-8 will also require CASPs in each member state to:
Make an annual declaration of crypto asset transactions carried out through them,
Transmit this information to the competent authorities in other member states.
Member States now have until December 31, 2025, to implement these new rules which come into force on January 1, 2026. Their implementation will therefore strengthen the fight against crypto-tax evasion and will reinforce monitoring of companies in their crypto assets operations.
DAC-8 isapplicable for entities which obtained a CASP status as defined in the Markets in Crypto Assets Regulation (MiCA) regulatory text. Decentralized Finance (DeFi) is not included in MiCA and therefore transactions realized on blockchains are not covered by DAC-8 reporting and transparency requirements. Services that operate fully decentralized, without intermediaries, are currently outside the scope of MiCA regulation.
If DAC-8 is to be efficient, MiCA regulation should include DeFi transactions. The volume of these transactions is expected to increase in the next years, and we can expect a second regulatory text on MiCA including DeFi and other blockchain related technologies such as NFTs.