The revised EU tax directive requires reporting of digital currency transfers
DAC8 is the latest extension of tax reporting procedures for crypto transfers.
The Economic and Financial Affairs Council of the European Union yesterday paved the entry into force of the MiCA regulation on cryptocurrency assets. In addition, it also approved updated tax reporting rules that have been enhanced to include digital currency transfers. This is the eighth version of the Administrative Cooperation Directive (DAC8). This regulation is a set of procedures for the automatic exchange of information between individual European governments for tax purposes.
DAC8 has been approved
Following the unanimous adoption of the MiCA by the Finance Ministers of the 27 Member States of the European Union, the European Council additionally approved updated rules on tax reporting. At the moment, they have been extended to digital currency transfers.
The Directive on Administrative Cooperation has already gained its eighth version (abbreviated as DAC8). It is nothing more than a set of regulations on the automatic exchange of information between European governments for tax purposes.
DAC8 was proposed in December last year and officially approved by the relevant authorities on May 16 this year following the adoption of MiCA. The latest version of the DAC is in line with the Digital Currency Reporting Framework as well as the latest changes in reporting standards that were made public in October 2022 via the Organization for Economic Co-operation and Development.
What do the latest regulations mean for cryptocurrency service providers?
DAC8 requires digital currency service providers to collect information on crypto transfers of any amount. These regulations are intended to ensure a high degree of traceability of this type of financial operations, and will also help identify suspicious transactions in the cryptocurrency space.
The aforementioned directive significantly tightens the EU's anti-money laundering (AML) and counter-terrorist financing (CFT) rules. Moreover, the latest regulations provide for the creation of a new European anti-money laundering authority in the near future.
All cryptocurrency service providers that fall under the DAC8 regulatory area will need to ensure that digital currency transfers are accompanied by details such as the name of the beneficiary, the distributed ledger address of the beneficiary in the event that the transfer of digital currencies is recorded on the network using a DLT or other similar technology. The latest regulations additionally require the beneficiary's account number in all cases where such an account exists.
All information on digital currency transfers listed above should be provided in a sufficiently secure manner before or during the transfer. In addition, DAC8 has been enhanced with new reporting rules for people with high incomes and much stricter requirements for submitting tax identification numbers.
Finally, it is worth adding that modifications to the DAC are not introduced through legislation, but through consultations between individual Member States of the European Council. The latest version of the directive is also intended to hinder the use of digital currencies for all illegal financial operations in the EU, as well as financing terrorism and war, or circumventing sanctions.
