DAC8 brings compliance burden to EU cryptoasset companies

On May 16, the EU finance ministers provisionally agreed to a new rule that would require cryptoasset operators not covered by other regulations as cryptoasset service providers to report the transactions of their EU clients to tax authorities starting in 2026. This new rule is part of the EU Directive on Administrate Cooperation and accordingly is known as DAC8. DAC8 is the latest provision aimed at creating tax transparency and is meant to bring transparency to crypto transactions, particularly with regard to trading using cryptoasset service providers or cryptoasset operators located in another country, or when trading takes place directly between individuals or entities established in another jurisdiction.

DAC 8 would come into effect in 2026 and would generally require that tax authorities in EU countries share reporting information from taxpayers on crypto transactions. The information would then be used to ensure that profits related to cryptoasset trading and investment are subject to tax. In practice, EU member states would require cryptoasset service providers and cryptoasset operators, irrespective of their size or location, to report transactions of clients residing in the EU. The proposal would also apply to domestic and cross border transactions and in specific cases, reporting would be required for non-fungible tokens (NFTs). Additionally, DAC8 also applies to high net-worth individuals as it extends the scope of automatic exchange of advance cross-border rulings where the individual holds a minimum of €1 million in financial or investable wealth, or in assets under management.

The European Commission expects DAC8 to have a “limited impact” on small and medium sized companies (SMEs) noting that the information subject to reporting should be available to the cryptoasset operators. The Commission also notes that while the burden and cost of compliance is likely to increase, having one set of rules applicable to EU member states should provide consistency and certainty as to what reporting is required.

DAC 8 would also impose penalties for serious non-compliant behavior, such as complete absence of reporting despite administrative reminders. However, penalties and compliance measures will be based on local legislation and vary from one member state to another. To avoid significant differences from one member state to another, DAC8 would establish minimum penalties that each country would implement through local legislation, along with their own regulations and penalties, as applicable.

Given the increasing prevalence of the cryptoasset industry, governments in all regions are enacting relatively bespoke regulatory frameworks that attempt to regulate the industry and mitigate potential risk related to cryptoassets. Each country enacting its own cryptoasset rules creates complexity for taxpayers and crypto stakeholders operating in multiple jurisdictions.  While DAC8 would bring a uniform law to EU member states, whether its benefits outweigh its burdens is yet to be determined. While the EU has provided guidance through DAC8, US taxpayers are still waiting for guidance that has been promised for years, including in the 2023 Greenbook. Given the current political environment, it is uncertain when guidance will be proposed, passed, and implemented.

For more information, see European Commission, Questions and Answers: DAC8.