Leaked EU Plan Requires Crypto, NFT Providers to Report Tax Information
According to a bill that the European Commission is expected to propose next week, cryptocurrency service providers would be required to provide information about the transactions of their European Union clients to national tax authorities within the bloc.
The new regulation, which was modeled after international norms and is intended to prevent cryptocurrency tax evasion, may also apply to stablecoins, derivatives, and non-fungible tokens (NFT), and it may even require non-EU-based cryptocurrency service providers to register within the EU, according to the document.
The bill’s draft stated that “the duty to disclose income made through crypto-asset investments and the exchange of such information will enable Member States to receive a full set of information to collect tax revenues due.”
The Directive on Administrative Cooperation, an existing tax regulation, aims to prevent people from hiding money in overseas bank accounts to avoid paying taxes, but officials are now concerned that cryptocurrency accounts offer an escape route.
The memo said, citing concerns that “crypto-assets could be utilized as a means of circumventing sanctions” which focus on more traditional assets, saying the change is also required to properly implement financial bans placed on Russia.
The rules require crypto asset providers to gather and verify user data, including names, addresses, social security numbers, and dates of birth, before sending it to the tax authorities in the user’s country of tax residence.
The regulations would go beyond an existing crypto-asset law called MiCA, encompassing businesses that provide non-fungible tokens (NFT) and overseas businesses with sporadic customers in the bloc. In the document, it was said that “such crypto-asset service providers must register in a Member State” of the EU and that “limiting the scope only to EU-based crypto-asset service providers might drastically diminish the tax revenues of each option.”
In contrast, MiCA exempts other Web 3 developments like NFTs while requiring bitcoin businesses with EU headquarters to register and adhere to minimal governance standards. According to the document, crypto service providers and tax departments will split hundreds of millions of euros in initial costs for adopting the regulations.
The bill stated, “The Directive applies to small or recently created firms as well as centralized and decentralized platforms.”
According to the document, “the definition of crypto assets is very general and targets as well those assets that can be held and transferred in a decentralized manner, without the intervention of traditional financial intermediaries, including stablecoins, derivatives issued in the form of a crypto asset, and certain non-fungible tokens.” Providers are urged to carefully consider whether NFTs are used for investment or payment purposes on a case-by-case basis.
According to the letter, the commission was “inspired” by work done at the OECD, a group of industrialized nations that has established standards for tax administrations to share cryptocurrency data and adheres to EU regulations aimed at preventing cryptocurrency money laundering.
A commission meeting set on December 7 is expected to approve the EU tax package.
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