EU Council’s Agreement Targets Crypto Assets (MiCA) as Potential Tax Havens
In a significant move to tackle tax avoidance and fraud, the Council of the European Union has reached an agreement on tax amendments that require the expansion of reporting obligations and the exchange of information involving cryptocurrencies. This agreement aims to reduce the misuse of crypto assets for tax evasion and strengthen administrative cooperation among tax administrations.
The amendments primarily focus on the reporting and automatic exchange of information regarding revenues from transactions in crypto assets and advance tax rulings for high-net-worth individuals. The objective is to enhance the existing legislative framework by broadening registration and reporting obligations, as well as overall administrative cooperation among tax authorities.
#Taxation: @EUCouncil puts the spotlight on crypto-assets and the wealthiest individuals, reaching its position on the #DAC8 proposal at #ECOFIN today.
Read our press release 👇https://t.co/4mZnMBWPFV
— EU Council Press (@EUCouncilPress) May 16, 2023
Elisabeth Svantesson, Sweden’s Minister for Finance, emphasized the significance of these rules in closing loopholes that have previously facilitated income tax evasion. By implementing these measures, the risk of crypto assets being exploited as a means of tax avoidance and fraud is greatly reduced. Svantesson also highlighted the European Union’s role as a global leader in implementing such standards.
Under the new directive, additional categories of assets and income, including decentralized crypto assets, stablecoins, and certain non-fungible tokens (NFTs), will be covered. To address the decentralized nature and cross-border characteristics of crypto assets, tax authorities will require strong international administrative cooperation to ensure effective tax collection.
The directive builds upon the definitions established in the regulation on markets in crypto assets (MiCA), which the Council also adopted on the same day. This broader scope encompasses various types of crypto assets to prevent any loopholes that could be exploited for tax purposes.
The Council’s decision reflects the concerns expressed in its previous conclusions on taxation in times of recovery, digitalization-related tax challenges, and tax good governance. The rapid growth and global use of alternative means of payment and investment, such as crypto assets and e-money, have introduced significant risks of tax evasion, tax fraud, and tax avoidance. It is crucial to update administrative cooperation rules at both the EU and global levels to address these risks effectively.
The proposal for these amendments was presented by the European Commission on December 8, 2022, and includes key objectives such as extending the scope of automatic information exchange to crypto-asset service providers’ reported data on crypto asset transactions. It also covers the exchange of advance cross-border rulings for high-net-worth individuals and information on non-custodial dividends and similar revenues. The proposal aligns with the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS), both endorsed by the G20.
The Council has been working diligently on this proposal, aiming to reach an agreement at the May meeting of the Economic and Financial Affairs Council (ECOFIN). It’s important to note that this directive falls under the consultation procedure rather than the ordinary legislative procedure, meaning the European Parliament can provide its views but does not possess the power to make changes to the proposal. The final decision rests with the member states in the Council, requiring unanimous agreement.
By expanding reporting obligations and facilitating the exchange of information on crypto assets, the Council of the EU is taking a significant step towards combating tax evasion and fraud. This comprehensive approach, covering a broad range of crypto assets, demonstrates the EU’s commitment to upholding global standards and ensuring effective tax collection in the digital economy.
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