New Proposal To Amend EU Directive On Administrative Cooperation In The Field Of Taxation (DAC 8) – Fin Tech

THE AMENDMENT PROPOSES NEW REPORTING REQUIREMENTS FOR SERVICE
PROVIDERS AND OPERATORS INVOLVED IN TRANSACTIONS WITH CRYPTO-ASSETS
AND EU RESIDENT CUSTOMERS. IT ALSO CONTAINS AN EXPANSION OF THE
EXCHANGE OF INFORMATION ON TAX RULINGS TO INCLUDE HIGH NET WORTH
INDIVIDUALS, AND INTRODUCES MINIMUM FINANCIAL PENALTIES AND A CRS
MODIFICATION.

1. DAC 8

The EU Commission has proposed an amendment of Council
Directive 2011/16/EU on administrative cooperation in the field of
taxation, known as DAC 8, that aims to increase transparency and
accountability for crypto-assets (“DAC 8” or the
“Proposal“).

DAC 8 follows the OECD’s Crypto-Asset Reporting Framework
(CARF) and is intended to work in conjunction with the Markets in
Crypto-Assets (MiCA) Regulation, which is currently awaiting final
approval by the EU Parliament and will regulate crypto
asset-service providers operating in the EU. DAC 8 will have a
broader scope, as it will also apply to non-EU crypto-asset service
providers. If adopted, the rules will need to be implemented by
Member States by the end of 2025 and come into effect on 1 January
2026.

The proposed amendments provide for the following:

• Reporting requirements: DAC 8 will apply to
  both EU-based and non-EU based crypto-asset service providers and
  require them to report information on transactions (exchanges and
  transfers) involving crypto-assets made by their EU-based users.
  Non-EU crypto-asset operators will have to register in a Member
  State of their choice and report in that Member State, unless an
  agreement on similar reporting and information exchange has been
  implemented with a competent authority of a Member State.




• Due diligence procedures: DAC 8 requires
  crypto-asset service providers to perform due diligence on
  reportable users, which are individuals or entities that are
  customers of the crypto-asset service provider and carry out
  reportable transactions. These users must be resident in a Member
  State and cannot be active entities or excluded persons (e.g.
  government entities, international organisations, central banks,
  financial institutions). Crypto-asset service providers must
  collect self-certification and relevant documentation from their
  customers to determine if they are “reportable persons”
  subject to reporting requirements, including for pre-existing
  relationships within 12 months of DAC 8 coming into effect.




• Specific penalties: Member States will have to
  enforce DAC 8 rules against crypto-asset operators within their
  jurisdiction through effective measures (the choice of which is
  left to the discretion of each Member State). If a crypto-asset
  user does not provide information requested by the reporting
  crypto-asset service provider after two reminders (but not before
  60 days), the reporting crypto-asset service provider must prevent
  the user from performing exchange transactions.




• Timeframe: Relevant crypto-asset service
  providers are expected to report information by 31 January of the
  year following the relevant calendar year (or other appropriate
  reporting period) to which the information relates, starting as
  from 1 January 2026. The automatic exchange to competent tax
  authorities of the Member States is expected to occur within 2
  months following the end of the relevant calendar year (or other
  appropriate reporting period), starting as from 1 January
  2027.

2. Tax rulings and high net worth individuals

The Proposal states that tax rulings (advance cross-border
rulings and advance pricing arrangements) for high net worth
individuals issued, amended, or renewed starting in calendar year
2026 will be automatically shared with other Member States.
Individuals with at least €1m in financial or investable
wealth or assets under management (excluding their main residence)
will be considered high net worth. Tax rulings issued, amended, or
renewed between 2020 and 2025 (calendar years) that are still valid
on 1 January 2026 will also be shared automatically.

3. CRS modification

As per the Proposal, the definition of financial institutions,
including the concept of depositary institutions, will be updated
to cover electronic money products and central bank digital
currencies for the purpose of the Common Reporting Standard (CRS).
The definition of investment entities will also be modified to
bring investing or managing reportable crypto-assets within the
CRS. Reporting and due diligence requirements for financial
institutions will be strengthened under CRS to include inter
alia reporting of the role of each controlling person,
self-certification forms for each reportable person, joint account
information, and any pre-existing or new accounts.

4. Penalties

The Proposal includes minimum financial penalties for various
reporting requirements (including CRS, country-by-country reporting
and DAC 6) in cases of failure to report after two reminders or
when the information provided is incomplete, incorrect, or false
(amounting to more than 25% of the information that should be
reported). Member States must ensure that these penalties include a
minimum amount based on the relevant DAC. In addition, Member
States must set penalties for false self-certification for CRS and
DAC 8.

Next steps

The Proposal is open for feedback until February 2023. After
consultation with the EU Parliament, it will need unanimous
approval in the Council of the EU to be adopted. Member States will
have until the end of 2025 to implement the new rules, which are
expected to take effect on 1 January 2026.

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guide to the subject matter. Specialist advice should be sought
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