“Automatic exchange of information on financial accounts has been put in place within the European Union… to detect and discourage tax evasion through a multilateral network of tax cooperation among national tax authorities,” says Laetitia Carroz, senior tax advisor at Luxembourg Bankers’ Association (ABBL). The set of rules known as Dac8--which need to be transposed into national law by the end of 2025 and will start taking effect in 2026-- extend the scope of automatic information exchange between agencies to include data “reported by crypto-asset service providers (Casps) and operators” on transactions, including transfer or exchange of crypto assets. This expansion is aimed at addressing potential loopholes resulting from the exceptional growth in the use of the crypto assets sphere.
Reflecting on the need for Dac8, , partner at Atoz, adds, “The European Commission would like to ensure, through additional exchange of information, that crypto assets are subject to extensive reporting to capture and tax crypto gains.” , partner at KPMG Luxembourg, agrees, stating, “Tax authorities lack the necessary information to track income from crypto assets, which are easily traded across borders.” He notes that Dac8, the latest in a series of updates, “covers a broad scope of crypto assets as defined in the regulation on Markets in Crypto assets (Mica).” Furthermore, he interprets, “From a pure tax perspective, some governments are concerned that tax revenues from crypto assets could be underreported.”
Carroz concurs, stating, “The decentralised nature of crypto assets may constitute a challenge for tax authorities when it comes to ensuring tax compliance. Indeed, by using distributed ledger technology or similar technology, crypto assets can be held and transferred without the involvement of traditional financial intermediaries or central administrators.” , tax partner at Arendt, argues, “The opacity and the decentralised nature of crypto assets present challenges for tax authorities seeking to ensure fair taxation as it is difficult to track and identify ownership as well as taxable events.”
Who’s affected
Casps and crypto asset operators will have to report crypto asset transactions to tax authorities under the automatic exchange of information framework, but to begin with, the definition of what constitutes a “crypto asset” is “very broad and refers to any digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology”, clarifies Dupuis. According to him, the definition “includes crypto assets that have been issued in a decentralised manner, as well as stablecoins, including e-money tokens (EMTs) and certain non-fungible tokens (NFTs).”
Thus, the implementation of Dac8 will essentially allow tax authorities to collect information, including data on crypto assets, e-money and central bank digital currencies (CBDCs), and automatically exchange it with other member states, echoes Kizito.
Potential impact
Neugebauer anticipates that Dac8 will exert a significant impact on both operators in the crypto assets industry and tax authorities across the EU. These new obligations are expected to introduce operational costs for Casps and crypto asset operators, as well as for local tax authorities. However, Neugebauer asserts, “An increase in tax revenues is expected.”
In Luxembourg, where capital gains from crypto assets held for more than six months are not taxable, the impact of Dac8 may be limited in terms of additional tax revenues, Neugebauer remarked.
These provisions are set to apply from 1 January 2026 and data should be shared within nine months among concerned member states following the end of the calendar year, Carroz reminds. She also notes that Dac8 has an extraterritorial scope, as it requires non-EU Casps providing crypto-asset services to EU residents to register with an EU member state and comply with the due diligence and reporting requirements of that member state.
“Crypto-asset users or end investors will also need to provide documentation before conducting crypto transactions through their service provider,” adds Kizito.
Innovation and competition
Carroz expects that by introducing reporting and transparency rules, “Dac8 should increase the legitimacy and acceptance of crypto assets within the EU.” Dupuis agrees, “These new rules might bring clarity and reassure institutional investors looking at potential investments into the crypto asset space”, but adds, “the risk is always for the EU to lose competitiveness against the US or Asia.” He continues, “There is definitely a risk that smaller players, startups and ventures will face a significant burden if compliance costs and obligations are not properly identified and controlled,” but on a positive note, feels that “the rules also provide for a certain level playing field within the EU.”
Kizito contends that Dac8 is “designed to foster innovation alongside regulation.” He argues that while “the volatility of digital assets carries significant risks as well as rewards,” it is crucial to integrate crypto assets into the EU’s economy and ensure the sector’s sustainable and secure growth through consistent and fair regulation. Additionally, Kizito emphasises that this approach reflects the EU’s commitment to “protect all digital asset users.”
Risks
One of the potential regulatory spillover effects of Dac8 would be the “penalties” on entities which fail to comply, notes Neugebauer. He wonders on the uncertainty and enforceability around cross-border penalties for “reporting Casps who would not be compliant with Dac8.”
Carroz suggests that, “Some concepts are broadly defined within the directive and may be interpreted differently by member states,” potentially leading to a “fragmented implementation of Dac8 across the union.” Kizito echoes this concern, stating “It’s worth noting that member states have diverged when transposing similar EU directives.” Carroz worries that this divergence “could undermine the effectiveness of Dac8 and the objective of establishing a consistent regulatory framework across the EU.”
Dupuis adds that Dac8 has also sparked “an important debate on privacy and taxpayer rights in the EU,” including those of the “General Data Protection Regulation (GDPR) and constitutional rights.” He concludes, “I expect this debate to gain further traction in the future.”
This article first appeared in the issue of Delano magazine.