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Crypto-Assets: exchange of information, and the new amendments the DAC8 brings forward

Authors: Christiana Aristidou, Rodoula Savva


The increase in the price of Bitcoin and other cryptocurrencies and crypto-assets, along with the swift development of crypto-assets providers, urged the EU regulator to fight the risk of under-reporting or no reporting of taxable income, and possible revenue losses across the EU. Therefore, the EU Commission commenced a public deliberation, purporting the reinforcement of the rules on administrative cooperation, and broadening the exchange of information concerning e-money and crypto-assets. As a result, a new proposal arose for a new update (i.e., the Eighth) of the Directive on Administrative Cooperation (DAC), estimated to be adopted by the EU Commission by the third quarter of this year.

Preceding steps and new proposals at the International and EU Level in relation to the Cryptocurrencies and Crypto-Assets scope.

From an EU and International perspective, an initial endeavor to audit transactions in the area of cryptocurrencies and crypto-assets, has been made within the scope of anti-money laundering (AML).

As per the International perspective, the Financial Action Task Force (FATF) initially in 2015 and later in 2019 updated its “Guidance for a risk-based approach to virtual assets (Vas) and virtual assets service providers (VASPs)’’ by amending its Recommendation no. 15 and by providing the definition of VASP and VAs in its glossary. In this guidance, the FATF recommended adopting to VAs a similar approach to the one adopted to traditional finance, such as the application of mandating KYC/AML laws. Nonetheless, in March 2021, the FATF has published a draft for a new update to the FATF guidance for crypto-assets, which was open for feedback until very recently. Adversely, as per the EU perspective, the fifth anti-money laundering Directive (AMLD5)  only refers to virtual currencies, provides a tight definition, and includes only  one possible kind of the crypto-assets.

Unquestionably, the need to impose certain obligations for intermediaries operating in the crypto-sphere, exists. Also, the link between financial regulation, AML, and tax provisions is essential. According to the EU Directive 2016/2258 (DAC5) Member States shall give access to the tax authorities of the methods, documents, and information collected for AML purposes by the competent authorities. Despite the narrow scope of AMLD5, the proposal for an EU Regulation on Markets in Crypto-assets (MICA) emerged at the end of September 2020, and a definition of crypto-assets is provided.

According to the MICA proposal, within the sphere of crypto-assets, three types of tokens shall be distinguished:

  • asset-referenced tokens: types of crypto-assets aimed at maintaining stable values by referring to the values of several fiat currencies that are legal tenders, one or several commodities or one or a number crypto-assets, or group of those assets;
  • electronic money tokens or ‘e-money tokens’: which refer to types of crypto-assets whose primary aim is being used as a medium of exchanges and that aims at maintaining stable values by referring to the values of fiat currencies that are legal tenders;
  • utility tokens: types of crypto-assets that are intended to provide digital access to goods or services, available on DLT, and are only accepted by the issuers of those tokens.

Additionally, the OECD published a report in late 2020, within which OECD focused in establishing  greater transparency in the current tax treatments of virtual currencies worldwide, specifically when considering a crypto-asset. In 2020, the Committee on Fiscal Affairs (CFA) has approved a work plan to review the Standard for Automatic Exchange of Financial Account Information in Tax Matters and it aims to submit to the Council an update to the Recommendation on the Standard for adoption by the end of 2021. This review is expected to describe financial assets (such as e-money and crypto-assets), products and intermediaries that should be included in the scope of the Standard, or of automatic exchange of information generally, because they seem to be possible substitutes to camouflaged financial products.

Consequently, the EU proposal to update the existing directive on administrative cooperation, is aligned with the OECD plan above described. Howbeit, the fact that each Member States’ applicable tax provisions may be different, needs to be taken into consideration during the drafting procedure.

The DAC 8 Public Consultation

The DAC updates’ purpose is part of additional movements to be executed, as per new tax package of the EU Commission, adopted on 15 July 2020. The regulation of such a steadily altering area, implies the need to check and figure out the players involved, the kind of the activities, and  the way the Member States currently treat crypto-assets.  The findings of the open discussion, commenced on 10 March 2021, shall assist the EU Commission in confirming the additional EU legislative measures should be taken, and which shall focuse on tax revenue losses, resulting from the underreporting of income/revenue generated by crypto-assets and e-money.

The first part of the discussion includes questions addressed directly to crypto-assets users and crypto-assets providers, aiming to receive a clear picture of the transactions made. The questions basically refer to :

  • the types of crypto-asset service providers used;
  • the types of activities carried out by the crypto-asset service providers;
  • where crypto-asset service providers are registered or licensed;
  • the location of the tax residency of the crypto-assets service provider;
  • the type of crypto-assets in which the respondent has invested;
  • the amount of the investment;
  • the features of the crypto-assets in which the respondent has invested;
  • whether the crypto-assets in which the respondent has invested are backed by an asset (e.g., stable coins);
  • whether they have a centralized or decentralized structure;
  • which is the amount in Euro invested on a yearly average;
  • which types of information about the customers and transactions are – accordingly to the respondents – readily available for different types of intermediaries; and
  • Which types of information regarding crypto-assets investments in their Member State of residence or another Member States are at the disposal of crypto-assets providers.

However, different national views may result in additional administrative procedures as regards crypto-assets/e-money service providers. Thus, questions are imposed as to whether the players believe that crypto-assets service providers shall have reporting obligations, whether the same reporting obligations for tax purposes throughout the EU should be adopted, which would be the main problems of the providers, and whether all entities should be subject to the same boundaries of reporting rules, or whether some exemptions shall also be included.  As regards this last question, the aim is to minimize the possibilities of the players being benefited by possible gaps, and simultaneously avoid causing harm to start-ups by imposing them demanding duties.

Additionally, questions are included concerning the types of transactions involving crypto-assets and e-money, that should be subject to reporting. Again, the danger of excluding certain transactions might result to loopholes. Considering alternatives in the way crypto-assets transactions operate, the last question of the first part, aims to receive feedback on whether peer-to-peer crypto-assets transactions through unhosted wallets, should be reported to tax authorities, to secure a level playing field and, if yes, how.

What is the Future for Exchange of Information on Crypto-Assets and E-Money?

Crypto-assets and e-money are a widely spread phenomenon. Empowering cooperation at an International and EU level shall assist in tackling the problem of under-reporting and non-reporting of income. The DAC8 proposal aims to ensure a comprehensive and coordinated approach towards the relevant players, whose role in executing crypto-assets exchange has already been noted as crucial in the AMLD5 and the MICA Regulation proposals.

The method of opening discussions around the DAC8 and also for the update of the FATF guidance on a risk-based approach to VAs and VAPs clearly reveals that the legislators and regulators identified the need to cooperate with the interested players, when considering to regulate in this area. Undeniably, this method shall enable policymakers to better understand the eco-systems and the types of compliance duties that need to be imposed.

To conclude, the information and outcome received by the EU Commission through the public discussions will also assist in designing the suitable  application of the VAT legislation.