Cooperation between national taxation authorities: Council puts the spotlight on crypto-assets and the wealthiest individuals

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The Council agrees on amendments to strengthen tax cooperation and reporting obligations for crypto-assets

The Council of the European Union has reached an agreement on its position regarding amendments to the directive on administrative cooperation in taxation. The amendments primarily focus on enhancing the reporting and automatic exchange of information on revenues from transactions in crypto-assets and advance tax rulings for high-net-worth individuals. The aim is to fortify the existing legislative framework by expanding the scope of registration and reporting obligations, as well as promoting overall administrative cooperation among tax administrations.

Elisabeth Svantesson, Minister for Finance of Sweden: "Today we are strengthening the rules for administrative cooperation and closing loopholes that have previously been used to avoid taxation of income. This reduces the risk of crypto-assets being used as a safe haven for tax avoidance and tax fraud. The agreement is yet another example of the EU as a leader in the implementation of global standards."

The amendments bring additional categories of assets and income, such as crypto-assets, within the purview of the directive. A mandatory automatic exchange of information will be established between tax authorities, necessitating the provision of information by crypto-asset service providers. The decentralized nature of crypto-assets has posed challenges for tax compliance in member states, requiring robust international administrative cooperation to ensure effective tax collection.

The directive encompasses a wide range of crypto-assets, incorporating the definitions established in the regulation on markets in crypto-assets (MiCA), which the Council adopted concurrently. This includes crypto-assets issued in a decentralized manner, stablecoins, e-money tokens, and certain non-fungible tokens (NFTs).

Background:

In November 2020, the Council acknowledged the potential risks of tax fraud, evasion, and avoidance associated with the increasing use of alternative means of payment and investment, including crypto-assets and e-money. It called for discussions on updating the rules on administrative cooperation at both EU and global levels to address these risks.

In December 2021, the Council outlined its expectation for the European Commission to present a legislative proposal in 2022 for the revision of directive 2011/16/EU, focusing on the exchange of information on crypto-assets and tax rulings for wealthy individuals.

In December 2022, the European Commission presented a proposal for a Council directive (DAC8) to amend the existing directive on administrative cooperation in taxation. The proposal aims to extend the scope of automatic exchange of information to cover reporting by crypto-asset service providers and includes provisions on cross-border rulings for high-net-worth individuals and automatic exchange of information on non-custodial dividends. It also seeks to improve reporting and communication of Tax Identification Numbers (TINs) and amend provisions on penalties for non-compliance with reporting requirements.

Please note that the European Parliament's role in this legislative process is limited to presenting its views through the consultation procedure. The final decision rests with the member states in the Council, requiring unanimity.

On 8 December 2022 the Commission presented a proposal for a Council directive amending directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8). The key objectives of this legislative proposal are the following:

to extend the scope of automatic exchange of information under DAC to information that will have to be reported by crypto-asset service providers on transactions (transfer or exchange) of crypto-assets and e-money. Expanding administrative cooperation to this new area is aimed at helping member states to address the challenges posed by the digitalisation of the economy. The provisions of DAC8 on due diligence procedures, reporting requirements and other rules applicable to reporting crypto-asset service providers will reflect the Crypto-Asset Reporting Framework (CARF) and a set of amendments to the Common Reporting Standard (CRS), which were prepared by the OECD under the mandate of the G20. The G20 endorsed the CARF and the amendments to CRS, both of which it considers to be integral additions to the global standards for automatic exchange of information
to extend the scope of the current rules on exchange of tax-relevant information by including provisions on exchange of advance cross-border rulings concerning high-net-worth individuals, as well as provisions on automatic exchange of information on non-custodial dividends and similar revenues, in order to reduce the risks of tax evasion, tax avoidance and tax fraud, as the current provisions of DAC do not cover this type of income
to amend a number of other existing provisions of DAC. In particular, the proposal seeks to improve the rules on reporting and communication of the Tax Identification Number (TIN), in order to facilitate the task of tax authorities of identifying the relevant taxpayers and correctly assessing the related taxes, and to amend DAC provisions on penalties that are to be applied by member states to persons for the failure of compliance with national legislation on reporting requirements adopted pursuant to DAC.

Experts of the member states have since analysed the proposal. The Council presidency has prioritised work on this proposal with the objective of reaching an agreement by the ECOFIN Council at its May meeting.

This directive is not subject to the ordinary legislative procedure but the consultation procedure. This means that the European Parliament may present its views but has no legislative power to make changes to the proposal. The final outcome of this legislative process is decided by member states in the Council, by unanimity.

Include all the cited:

Elisabeth Svantesson: Elisabeth Svantesson is the Minister for Finance of Sweden. She supports the agreement reached by the Council on strengthening tax cooperation and closing loopholes to prevent tax avoidance through the use of crypto-assets.

Technical glossary:

Administrative cooperation: Refers to the collaboration and exchange of information between tax administrations to ensure effective tax collection and combat tax evasion.
Advance tax rulings: Refers to rulings issued by tax authorities in advance to provide clarity and guidance on the tax implications of specific transactions or arrangements.
Crypto-assets: Digital or virtual assets that utilize cryptography for security and include cryptocurrencies, digital tokens, and other digital representations of value.
E-money tokens: Digital tokens that represent electronic money, typically issued by financial institutions or e-money issuers.
High-net-worth individuals: Individuals with substantial wealth and financial assets.
Non-fungible tokens (NFTs): Unique digital assets that cannot be exchanged on a one-to-one basis, often used for representing ownership or proof of authenticity for digital or physical items.
Reporting obligations: Requirements for individuals, businesses, or service providers to provide information and reports to tax authorities regarding their financial activities or transactions.
Tax administrations: Government agencies responsible for the administration and enforcement of tax laws.
Tax compliance: The adherence to tax laws and regulations, including accurate reporting of income and payment of taxes.
Tax evasion: The illegal act of intentionally avoiding the payment of taxes through fraudulent means.
Tax fraud: Deliberate deception or misrepresentation with the intent to unlawfully obtain a tax benefit or avoid tax liabilities.

Points in the article included in the glossary:

The amendments mainly concern the reporting and automatic exchange of information on revenues from transactions in crypto-assets and information on advance tax rulings for the wealthiest (high-net-worth) individuals.
Additional categories of assets and income, such as crypto-assets, will now be covered.
There will be a mandatory automatic exchange between tax authorities of information which will have to be provided by reporting crypto-asset service providers.
The directive covers a broad scope of crypto-assets, including stablecoins, e-money tokens, and certain non-fungible tokens (NFTs).

Themes addressed:

Strengthening tax cooperation and administrative cooperation among member states.
Closing loopholes to prevent tax avoidance and tax fraud through the use of crypto-assets.
Expansion of reporting and automatic exchange of information on revenues from crypto-asset transactions.
Inclusion of additional categories of assets and income within the scope of the directive.
The role of international administrative cooperation in ensuring effective tax collection in the cross-border context.

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