On 16 May 2023, the EU Finance Ministers reached a political agreement (“general approach”) on new tax transparency rules for all service providers facilitating transactions in crypto assets for customers resident in the EU.
The main aim is to improve the ability of the tax authorities in the Member States to detect and combat tax fraud, avoidance and evasion of EU residents based on the reporting obligations incumbent on the EU crypto-assets service providers. Currently, the EU tax authorities do not have access to the necessary information to control the revenues from crypto-assets and the related tax payments, which deprives them of significant tax revenue.
Under the new directive, all EU crypto-assets service providers (“CASP”), irrespective of their size, will report the relevant information on the crypto-assets transactions of EU residents and their corresponding proceeds to the EU tax authorities. CASPs will have to register and provide precise data on their identity if they wish to operate in the EU.
The "Travel Rule", already existing in traditional finance, will apply to transfers of crypto assets. It will require service providers to transmit certain customer and transaction information to the receiving financial institution of those transactions.
The scope of the new directive has been extended to the reporting obligations of financial institutions with respect to electronic money and central bank digital currencies, as well as the automatic exchange of information on cross-border tax rulings, which are mechanisms used by wealthy people to reduce their taxes by benefiting from favorable regulations abroad.
The new rules will support the effectiveness of Markets in Crypto-assets (“MiCA”) and the Transfer of Funds Regulation (“TFR”), which are in line with the OECD initiative on the Crypto-Asset Reporting Framework. On 16 May 2023, these two regulations were also finally adopted by the EU finance ministers, completing their legislative process.
This comprehensive legal framework aims to prevent and combat illicit activities (i.e. money laundering, terrorism financing), but also to better protect EU consumers. Until now, transfers of virtual assets, such as bitcoins, have escaped European financial services legislation.
The new reporting requirements on crypto-assets, e-money and central bank digital currencies will enter into force on 1 January 2026, subject to the European Parliament approval.
