EU Council Adopts DAC8 Directive to Enhance Tax Oversight on Crypto Transactions

The Council of the European Union has ratified a directive amending the region's standing rules on tax administrative collaboration on October 17, 2023. This amendment, commonly referred to as DAC8, primarily targets the reporting and automatic information exchange regarding revenue stemming from crypto-asset transactions and advance tax rulings for high-net-worth individuals.

The directive’s primary goal is to fortify the existing legislative framework by widening the ambit of registration and reporting mandates, thereby enhancing the overall administrative synergy of tax authorities. The directive now encapsulates additional asset and income categories such as crypto-assets. A mandatory automatic information exchange between tax authorities is introduced, necessitating reporting by crypto-asset service providers. Previously, the decentralized essence of crypto-assets posed a formidable challenge to member states’ tax administrations in ensuring tax compliance. The cross-border characteristic of crypto-assets necessitates robust international administrative collaboration to actualize effective tax collection.

DAC8 extends to a vast range of crypto-assets, drawing upon definitions delineated in the Markets in Crypto-assets Regulation (MiCA). This includes crypto-assets issued in a decentralized fashion, stablecoins, e-money tokens, and certain non-fungible tokens (NFTs).

Tracing back to December 7, 2021, the Council expressed its expectation for the European Commission to unveil a legislative proposal in 2022 concerning the revision of Directive 2011/16/EU on tax administrative cooperation (DAC), specifically addressing crypto-assets and tax rulings for affluent individuals. Following through, on December 8, 2022, the Commission proposed an amendment to Directive 2011/16/EU, now known as DAC8.

DAC8 aims to broaden the scope of automatic information exchange under DAC to encompass information reported by crypto-asset service providers on crypto-asset and e-money transactions. This expansion seeks to aid member states in tackling challenges engendered by economic digitalization. The directive aligns with the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) orchestrated by the OECD at the behest of the G20.

Furthermore, DAC8 extends the existing rules concerning the exchange of tax-relevant information to include provisions on the exchange of advance cross-border rulings for high-net-worth individuals and automatic information exchange on non-custodial dividends and analogous revenues. This initiative is aimed at mitigating the risks of tax evasion, tax avoidance, and tax fraud.

The directive’s journey towards adoption saw the Council concur on its position regarding the amendments on May 16, 2023, followed by the European Parliament expressing its opinion on September 13, 2023, under the consultation procedure. The directive was unanimously adopted by member states in the Council and is slated for publication in the Official Journal, with its enforcement commencing on the twentieth day post-publication.