On 17 October 2023, the Council of the EU announced the adoption of a crucial directive to further administrative cooperation within the realm of taxation. This directive primarily targets the reporting and exchange of information relating to transactions in crypto-assets and advance tax rulings for high-net-worth individuals.
Key Provisions of the Directive:
Enhanced Scope of Registration and Reporting: The directive aims to fortify the prevailing legislative architecture. It expands the breadth of registration and reporting duties, ensuring a more robust collaboration among tax authorities.
Inclusion of Crypto-assets: Previously, the decentralized character of crypto-assets presented challenges for member states' tax departments to maintain tax adherence. With the cross-border nature of crypto-assets, international administrative collaboration becomes vital. This directive encompasses:
A wide variety of crypto-assets, with foundations on definitions from the MiCA (regulation on markets in crypto-assets).
Decentralized issued crypto-assets.
Stablecoins, e-money tokens, and select NFTs (non-fungible tokens).
Automatic Information Exchange: Reporting entities handling crypto-assets will now have to engage in obligatory automatic sharing of details with tax bodies. This initiative addresses the past hurdles caused by crypto-assets' decentralized nature.
Historical Context and the Path Forward:
In December 2021, the Council emphasized the expectation of a legislative proposal for 2022. This proposal would focus on the directive 2011/16/EU on administrative cooperation regarding taxation. The emphasis would be on information exchange about crypto-assets and tax rulings for affluent individuals.
By December 2022, the Commission proposed amending the aforementioned directive (now referred to as DAC8). Noteworthy objectives of DAC8 include:
Expanding Information Exchange: The idea is to increase the domain of automatic info-sharing under DAC to cover reports from crypto-asset service entities about crypto-asset and e-money transactions. This move hopes to aid member nations in tackling the challenges ushered in by the digital transformation of the economy. Moreover, DAC8’s provisions on due diligence, reporting obligations, and related rules for crypto-asset reporting will echo the CARF (Crypto-Asset Reporting Framework) and modifications to the CRS (Common Reporting Standard). Both these standards received an endorsement from the G20.
Broadening of Tax-Relevant Information Exchange: This encompasses sharing details on advance cross-border rulings for wealthy persons and information exchange on non-custodial dividends. The goal is to diminish tax evasion, avoidance, and fraud risks. The existing DAC provisions didn’t cater to such income types.
Refinements to DAC’s Existing Provisions: This entails enhancements to rules about Tax Identification Number (TIN) reporting and communication. Such improvements simplify the tasks for tax departments in identifying pertinent taxpayers and tax assessment. Additionally, there will be changes to DAC stipulations concerning penalties applied by member states for non-compliance with national reporting legislation aligned with DAC.
In May 2023, the Council agreed upon its position about the directive's amendments. Subsequently, in September 2023, the European Parliament delivered its views on the directive.
Concluding this chapter, the directive received unanimous approval by member states in the Council. Its publication in the Official Journal is forthcoming, with the directive coming into effect on the 20th day post-publication.
The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.
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