Explanatory Memorandum to COM(2022)707 - Amendment of Directive 2011/16/EU on administrative cooperation in the field of taxation - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2022)707 - Amendment of Directive 2011/16/EU on administrative cooperation in the field of taxation. |
|---|---|
| source | COM(2022)707  |
| date | 08-12-2022 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Fair taxation is one of the main foundations of the European social market economy. It is also and among the key pillars of the Commission’s commitment for ‘an economy that works for people’ 1 . A fair tax system should be based on tax rules that ensure everybody pays their fair share, while making it easy for taxpayers, whether businesses or individuals, to comply with the rules.
The COVID-19 pandemic and the consequences derived from Russia’s war of aggression against Ukraine add urgency to the need to protect public finances. Member States will require sufficient tax revenues to finance their considerable efforts to contain the negative economic impact of the crises, while ensuring that the most vulnerable groups are protected. In this context, ensuring tax fairness by preventing tax fraud, tax evasion and tax avoidance has become more important than ever. And, in order to better prevent tax fraud, tax evasion and tax avoidance in the EU, it is crucial to strengthen administrative cooperation and exchange of information on tax matters.
More specifically, the emergence of alternative means of payment and investment, such as crypto-assets and e-money, threaten to undermine the progress made on tax transparency in recent years and pose substantial risks for tax evasion. Hence, the Commission committed in the Communication for an Action Plan for fair and simple taxation supporting the recovery strategy 2 to update the directive on administrative cooperation to expand its scope to an evolving economy and strengthen the administrative cooperation framework.
In support of the work of the Commission, the Council (Ecofin) adopted Council conclusions on fair and effective taxation in times of recovery, on tax challenges linked to digitalisation and on tax good governance in the EU and beyond 3 on 27 November 2020.
The Ecofin report to the European Council on tax issues 4 , which was approved by the European Council on 1 December 2021, states that it “is expected that the Commission will, in 2022, table a legislative proposal on further revision of the Directive 2011/16/EU on administrative cooperation in the field of taxation, concerning exchange of information on crypto-assets and tax rulings for wealthy individuals.”
The European Parliament adopted its resolution of 10 March 2022 with recommendations to the Commission on fair and simple taxation supporting the recovery strategy 5 where it welcomes the Action Plan and supports its thorough implementation and specifically calls on the Commission to include further categories of income and assets such as crypto-assets in the scope of automatic exchange of information.
This proposal should also be seen in the context of the parallel work in the OECD to agree on a standard for the exchange on information for tax purposes in relation to crypto-assets (the CARF) and the extension of the scope of the Common Reporting Standard (CRS) to cover e-money, which resulted in an agreement in August 2022 6 and was welcomed by the G20 in the Bali Leaders’ Declaration 7 in November 2022.
In recent years, the EU has focused its efforts on tackling tax fraud, tax evasion and tax avoidance, and on boosting transparency. Major improvements have been made in particular in the field of exchange of information trough a number of amendments to the Directive on Administrative Cooperation (DAC) 8 . Nevertheless, the European Court of Auditors report 9 and the European Parliament resolution 10 pointed at some inefficiencies and the need for improvement in several areas of the Directive, relating to all forms of exchanges of information and administrative cooperation. In particular, the lack of specific provisions covering e-money and central banck digital currencies, cross-border tax rulings for high net worth individuals and the lack of clarity of the compliance measures emerged among the most problematic elements of the framework 11 .
The European Court of Auditors report notes that ‘Cryptocurrencies are excluded from the scope of information exchange. If a taxpayer holds money in electronic cryptocurrencies, the platform or other electronic provider supplying portfolio services for such customers are not obliged to declare any such amounts or gains acquired to the tax authorities. Therefore, money held in such electronic instruments remains largely untaxed.’
Therefore, there is a clear need to improve the existing framework for exchange of information and administrative cooperation in the EU.
In addition to making existing rules more stringent, the expansion of administrative cooperation to new areas is required in the EU. This is to address the challenges posed by the ever increasing use of crypto-assets for investment purposes. This will help tax administrations in the EU to better and more efficiently collect taxes and keep pace with new developments, especially given the differences in the taxation systems for crypto-assets from Member State to Member State. The characteristics of crypto-assets make the traceability and detection of taxable events by tax administrations very difficult. The problem is intensified in particular when trading is carried out using crypto-asset service providers or crypto-asset operators located in another country, or when it is done directly between individuals or entities established in another jurisdiction. The lack of reporting of income from crypto-asset investments leads to a shortfall of Member States’ tax revenues. It also provides crypto-asset users with an advantage over those who do not invest in crypto-assets. If this regulatory gap is not addressed, the objective of fair taxation cannot be ensured. In order to address these concerns, the Commission brought forward this proposal that is based on the OECD crypto-asset reporting framework. The latter specifies due diligence procedures, reporting requirements and other rules for reporting crypto-asset service providers. The main difference between the proposal and the OECD crypto-asset reporting framework is that operators of crypto-asset services active on the EU market are regulated by Regulation XXX.
Well functioning and coordinated reporting and exchange of information are further needed to improve the conditions for taking necessary action to enforce sanctions against Russia. This increases the urgency and highlights the importance of introducing provisions to ensure that information related to both holding, and transactions of crypto-assets are reported and exchanged among Member States.
This proposal foresees also to strengthen existing provisions of the Directive to reflect the developments observed in the internal market and at international level. It should lead to an effective reporting and exchange of information including by reflecting the latest additions to the Common Reporting Standard including the integration of e-money and central bank digital currency provisions, by providing a clear and harmonised framework for compliance measures, or by extending the scope of cross-border rulings to high net worth individuals.
• Consistency with existing policy provisions in the policy area
The proposed legislation addresses the broad political priority for transparency in taxation, which is a pre-requisite for effectively fighting against tax fraud, tax evasion and tax avoidance.
The Directive on administrative cooperation that provides the framework for administrative cooperation between Member States’ competent authorities in the field of taxation was amended several times with the following initiatives:
–Council Directive 2014/107/EU of 9 December 2014 12 (DAC2) as regards the automatic exchange of financial account information between Member States based on the OECD Common Reporting Standard (CRS) which prescribes the automatic exchange of information on financial accounts held by non-residents;
–Council Directive (EU) 2015/2376 of 8 December 2015 13 (DAC3) as regards the mandatory automatic exchange of information on advance cross-border tax rulings;
–Council Directive (EU) 2016/881 of 25 May 2016 14 (DAC4) as regards the mandatory automatic exchange of information on country-by-country reporting (CbCR) among tax authorities;
–Council Directive (EU) 2016/2258 of 6 December 2016 15 (DAC5) as regards access to anti-money-laundering information by tax authorities;
–Council Directive (EU) 2018/822 of 25 May 2018 16 (DAC6) as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements; and
–Council Directive (EU) 2021/514 17 of 22 March 2021 (DAC7) amending Directive 2011/16/EU on administrative cooperation in the field of taxation as regards sellers on digital platforms.
• Consistency with other EU policies
The existing provisions of the Directive on Administrative Cooperation interact with the General Data Protection Regulation 18 (GDPR) in several instances where personal data becomes relevant. At the same time, the Directive includes specific provisions and safeguards on data protection. The proposed amendments will continue to follow and respect these safeguards. The relevant IT and procedural measures ensure that personal data are protected in line with the GDPR. The exchange of data will pass through a secured electronic system that encrypts and decrypts the data and, in every tax administration, only authorised national officials should have access to this information. As joint data controllers, Member States will have to ensure the data storage according to the security measures and time limts required by the GDPR.
The Commission is active in several policy areas relevant to the crypto-asset market, including crypto-asset service providers and crypto-asset operators covered by the proposed initiative. The proposed initiative does not impinge on other simultaneously ongoing Commission projects, as it is specifically aimed at addressing certain tax-related issues. The proposal builds on the provisions of the Regulation on Market in Crypto-Assets (Regulation XXX) and the Transfer of Funds Regulation especially in terms of using the definitions set out in those EU acts and relying on the authorisation requirements of the former. The Transfer of Funds Regulation ensures a certain level of due diligence carried out by obliged entities for anti-money laundering and financing of terrorism purposes but does not provide for the reporting and automatic exchange of information in the detail which is required for direct tax purposes.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
Article 115 of the Treaty on the Functioning of the European Union (TFEU) is the legal base for legislative initiatives in the field of direct taxation. Although no explicit reference to direct taxation is made, Article 115 refers to directives for the approximation of national laws that directly affect the establishment or functioning of the internal market. For this condition to be met, it is necessary that proposed EU legislation in the field of direct taxation aims to rectify existing inconsistencies in the functioning of the internal market. Furthermore, given that the information exchanged under the Directive on Administrative Cooeration can be also used in the field of VAT and other indirect taxes, Article 113 TFEU is also quoted as a legal base.
As the proposed initiative amends the Directive, it is inherent that the legal base remains the same. Indeed, the proposed rules that aim at improving the existing framework with respect to the exchange of information and administrative cooperation do not deviate from the subject matter of the Directive. Most notably, the envisaged amendments will provide a clear and harmonised framework for compliance measures, integrate e-money provisions into the existing framework and extend the scope of cross-border rulings to high net worth individuals. The consistent application of these provisions can only be achieved through the approximation of national laws.
In addition to the existing framework, the proposal presents rules on reporting by reporting crypto-asset service providers as a response to problems in the area of taxation arising out of the use of crypto-assets for investment or as a means of exchange. Reporting crypto-asset service providers allow crypto-asset users to make use of their services, while potentially not reporting income earned in the Member State of their residence. As a consequence, Member States suffer from unreported income and loss of tax revenue. Such a situation also gives rise to conditions of unfair tax competition against individuals or businesses that do invest in crypto-assets, which distorts the operation of the internal market. It follows that such a situation can only be tackled through a uniform approach, as prescribed in Article 115 TFEU.
• Subsidiarity (for non-exclusive competence)
The proposal fully observes the principle of subsidiarity as set out in Article 5 TFEU. It addresses administrative cooperation in the field of taxation. This includes certain changes in the rules to improve the functioning of existing provisions that deal with cross-border cooperation between tax administrations across Member States. The proposal also involves extending the scope of automatic exchange of information to crypto-asset service providers and crypto-asset operators by placing an obligation on them to report on the income earned by crypto-asset users.
Tax authorities lack information to monitor the proceeds obtained using crypto-assets and the potential tax consequences. In other words, there is a lack of information available to tax administrations regarding crypto-assets, even though the crypto-assets market has gained in importance over the last few years.
Most Member States already have legislation or at least administrative guidance in place to tax income obtained through crypto-asset investments. However, they often lack the necessary information that would enable them to do so.
Legal certainty and clarity can only be ensured by addressing national inefficiencies through a single set of rules applicable to all Member States. The internal market needs a robust mechanism to address these loopholes in a uniform fashion and to rectify existing distortions by ensuring that tax authorities receive appropriate information on a timely basis. A harmonised reporting framework across the EU seems indispensable in light of the prevalent cross-border dimension of services provided by reporting crypto-asset service providers. Considering that the reporting obligation with respect to income earned through crypto-asset investments aims primarily to inform tax authorities about cross-border crypto-asset transactions, it is necessary to pursue such an initiative through action at the EU level, in order to ensure a uniform approach to the identified problem.
Therefore, the EU is better placed than individual Member States to address the problems identified and ensure the effectiveness and completeness of the system for the exchange of information and administrative cooperation. First, the proposed Directive will ensure a consistent application of rules across the EU. Second, all reporting crypto-asset service providers in scope will be subject to the same reporting requirements. Third, reporting will be accompanied by an exchange of information and, as such, enable tax administrations to obtain a comprehensive set of information on the income earned through crypto-asset investments.
• Proportionality
The proposal consists of improving existing provisions of the Directive on Administrative Cooperation and extends the scope of automatic exchanges to certain specific information reported by reporting crypto-asset service providers. The improvements do not go beyond what is necessary to achieve the objective of exchanges of information and, more broadly, administrative cooperation. Considering that the identified distortions in the functioning of the internal market usually extend beyond the borders of a single Member State, EU common rules represent the minimum necessary for tackling the problems in an effective manner.
Thus, the proposed rules contribute to a clearer, and more consistent and effective application of the Directive leading to better ways of achieving its objectives. The envisaged obligation of reporting crypto-asset service providers to report income earned by their users, also offers a workable solution against tax evasion through the use of mechanisms for the exchange of information that have previously already been tried for DAC3 and DAC6. In this vein, one can claim that the proposed initiative represents a proportionate answer to identified loopholes in the Directive and also aims to tackle the problem of tax evasion.
• Choice of the instrument
The legal base for this proposal is dual: Articles 113 and 115 TFEU, which lay down explicitly that legislation in this field may only be enacted in the legal form of a directive. It is therefore not permissible to use any other type of EU legal act when it comes to passing binding rules in taxation. In addition, the proposed directive constitutes the seventh amendment to the Directive; it thus follows Council Directives 2014/107/EU, (EU) 2015/2376, (EU) 2016/881, (EU) 2016/2258, (EU) 2018/822 and (EU) 2021/514.
3. RESULTS OF EX POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex post evaluations/fitness checks of existing legislation
In 2021, the European Court of Auditors examined how the European Commission is monitoring the implementation and performance of the system for exchange of tax information laid down in Directive 2011/16/EU, and how Member States are using the exchanged information.
In addition, the European Parliament 19 assessed the implementation of the obligations of information exchange under Directive 2011/16/EU and its subsequent amendments, which aim to combat tax fraud, tax evasion and tax avoidance by facilitating the exchange of information related to taxation.
The European Cout of Auditors report concluded that overall the system has been well established, but more needs to be done in terms of monitoring, ensuring data quality and using the information received. In its resolution, the European Parliament claims that the information exchanged is of limited quality and that little monitoring of the system’s effectiveness takes place. It was also noted that currently there is no common EU framework for monitoring the system’s performance and achievements, and only a few Member States systematically carry out quality checks on the data exchanged. Finally, the European Parliament advocated for new legislation to strengthen and further improve the Directive 20 , while at the same time, ensuring the thorough implementation of existing rules and standards, also in the field of anti-money laundering. Building upon these two reports, this legislative proposal presents a set of specific initiatives to improve the functioning of administrative cooperation.
• Stakeholder consultations
On 10 March 2021, the Commission launched a public consultation to gather feedback on the way forward for EU action on strengthening the exchange of information framework in the field of taxation. A number of questions were presented and stakeholders gave supportive feedback in a total of 33 responses.
In addition, on 23 March 2021, the Commission carried out a targeted consultation of the business sector by holding a meeting with various representatives of crypto-asset and e-money service providers and digital asset associations. There was a consensus among representatives on the benefits of having a standardised EU legal framework for gathering information from reporting crypto-asset service providers, as compared with several disparate national reporting rules. In addition, representatives advocated for a solution similar to DAC2, which would enable reporting of the information only to the tax administration in a Member State where the reporting crypto-asset service provider is authorised/resident/registered.
As regards Member States, they were consulted via a questionnaire and dedicated meetings. On 13 November 2020 and 24 March 2021, the Commission services organised a meeting of Working Party IV, where Member States had the opportunity to debate a possible proposal for an amendment to the Directive. The meeting focused on the reporting and exchange of information on income earned through crypto-asset investments.
Overall, broad support was recorded for a possible EU initiative for the exchange of information on income earned by crypto-asset users via reporting crypto-asset service providers. Most Member States supported aligning the scope with the work done at OECD level.
Overall, both public and targeted consultations seem to converge on the challenges that the new rules addressed to reporting crypto-asset service providers should aim to tackle: the lack of reporting on holdings and transactions involving crypto-assets; and the need to clarify the inclusion of e-money products in the scope of reporting obligations and information exchange among Member States.
• Impact assessment
The Commission conducted an impact assessment of the relevant policy options. This received a positive opinion from the Regulatory Scrutiny Board on 12 November 2021 (SEC(2022) 438). The Regulatory Scrutiny Board issued a positive opinion with reserrvations making a number of recommendations for improvements that have been taken into account in the final impact assessment report (SWD(2022) 401). The Regulatory Scrutiny Board commented on the potential improvements on the description of the scope of the initiative and all the available and feasible policy options taking into account the impact on small and medium enterprises. The impact assesment was re-drafted to better define the scope of the initiative and further analyse the different policy options taking into account the potential carve out of crypto-asset service providers based on their size.
Various policy options have been assessed against the criteria of effectiveness, efficiency and coherence in comparison with the baseline scenario. At the highest level of analysis, a choice is to be made between the status quo or baseline scenario and a scenario where the Commission would act by way of either a non-regulatory or a regulatory action. Non-regulatory action would consist in issuing a recommendation. The regulatory options involve a legislative initiative to amend specific elements of the existing administrative cooperation framework.
The different policy options revolved around the interaction of different forms of reporting (i.e. transaction-by-transaction, aggregated or hybrid) and the possibility to set a threshold based on size (turnover) of businesses. The preferred option is the one where there is a hybrid reporting, where reporting crypto-asset service providers report aggregate information per type of crypto-asset and per type of transaction; thereby ensuring that tax authorities can manage the amount of received information to perform the needed risk analyses. The preferred option does not include any threshold based on reporting crypto-asset service providers’ size as it may create loopholes.
Regarding reporting crypto-asset service providers, the impact assessment indicates that the regulatory option at EU level is the most appropriate for meeting the identified policy. The status quo or baseline scenario was shown to be the least effective, efficient or coherent option. As opposed to the baseline scenario, an EU mandatory common standard would ensure that all EU tax administrations have access to the same type of data. In other words, EU regulatory action would put all tax authorities on an equal footing when it comes to access to information collected for an identified tax purpose. This also provides for the automatic exchange of information at EU level based on common standards and specifications. Once implemented, it is the only scenario in which tax authorities in the Member State of a crypto-asset user can verify that the user has accurately reported its capital gains earned through crypto-asset investments, without the need for ad hoc, time-consuming requests and inquiries. In addition, an EU mandatory common reporting standard would ensure that crypto-asset service-providers do not face fragmented national solutions when it comes to tax related reporting obligations.
Contents
- Economic impacts
- Costs
- Scope
- Due diligence procedures
- Reporting to the competent authority by the reporting crypto-asset service provider
- Automatic exchange of information between competent authorities
- Effective implementation and prevention of performing exchange transactions
- Article 25(a) Penalties and other compliance measures
Benefits
The obligation to report income earned through crypto-asset investments and the exchange of such information will help Member States receive a full set of information in order to collect tax revenues due. Based on estimations, additional tax revenues could reach EUR 2.4 billion. Common reporting rules will also help create a level playing field between crypto-asset providers. Transparency on income earned by crypto-asset investors would improve the level playing field with more traditional assets.
Having a single EU mandatory instrument could also have positive social impacts and contribute to a positive perception of tax fairness and to a fair burden sharing across taxpayers. It is assumed that the broader the scope of the rules, the greater the perception of tax fairness, given that there are issues of underreporting across all types of activities. The same reasoning applies to benefits in terms of fair-burden sharing: the wider the scope of the initiative, the better Member States can ensure that taxes due are effectively collected. The fiscal benefits of EU action are much greater where the reporting obligation has a broad scope.
The one-off costs incurred for implementing and automatic EU-wide reporting are estimated approximately at EUR 300 millions for the totality of reporting crypto-asset service providers and tax administrations, with recurrent costs around EUR 25 millions annually . One-off and recurrent costs are mainly due to IT systems’ development and operations. Tax administrations will also incur enforcement costs. In the interest of cost efficiency, Member States are encouraged to enable digital reporting and ensure, to the extent possible, interoperability of systems, including at data level, between reporting crypto-asset service providers and tax administrations.
• Regulatory fitness and simplification
The proposal is designed to minimise regulatory burdens for reporting crypto-asset service providers, taxpayers and tax administrations. In line with the one in one out rule, reporting crypto-assets service providers will benefit from homogeneous reporting requirements throughout the EU, rather than having multiple standards across each Member State. The preferred policy response represents a proportionate answer to the identified problem since it does not exceed what is necessary for achieving the objective of the Treaties for a better functioning of the internal market without distortions. Indeed, the common rules will be limited to creating the minimum necessary common framework for reporting income earned through crypto-asset investments. For example: (i) the rules ensure that there is no double reporting (i.e. single point oreporting); (ii) the automatic exchange is limited to the relevant Member States; and (iii) the imposition of penalties for non-compliance will remain under the sovereign control of Member States. In addition, harmonisation does not go further than ensuring that the competent authorities are informed about the income earned. Thereafter, it is for Member States to decide on the tax due in accordance with national legislation.
• Fundamental rights
This proposed directive respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. In particular, the set of data elements to be transmitted to tax administrations are defined in a way to capture only the minimum data necessary to detect non-compliant underreporting or non-reporting, in line with the GDPR obligations in particular the data minimisation principle.
4. BUDGETARY IMPLICATIONS
See legislative financial statement.
5. DETAILED EXPLANATION OF THE SPECIFIC PROVISIONS OF THE PROPOSAL
The proposal puts forward changes to existing provisions on exchanges of information and administrative cooperation. It also extends the Directive’s scope to the automatic exchange of information with respect to information reported by reporting crypto-asset service providers. The rules on due diligence procedures, reporting requirements and other rules applicable to reporting crypto-asset service providers are based on the OECD crypto-asset reporting framework.
(i) Automatic exchange of information
• Categories of income and capital
Article 8(1) lays down the categories of income subject to mandatory automatic exchange of information between the Member States. Non-custodial dividend income is added to the categories of income and capital that are already subject to the exchange of information. An amendment will also oblige Member States to exchange with other Member States all information that is available on all categories of income and capital 21 with respect to taxable periods starting on or after January 2026 in accordance with Article 8(3).
• Advance cross-border rulings for high-net-worth individuals
Article 8a lays down rules for the automatic exchange of advance cross-border rulings and advanced pricing agreements for persons other than natural persons. This provision is extended to high-net-worth individuals who hold a minimum of EUR 1 000 000 in financial or investable wealth or assets under management, excluding that individual’s main private residence. The amendment will oblige Member States to exchange with other Member States information on advance cross-border rulings for high-net-worth individuals issued, amended or renewed between 1 January 2020 and 31 December 2025, such communication shall take place under the condition that they were still valid on 1 January 2026.
• Information reported by reporting crypto-asset service providers
Article 8ad lays down the scope and conditions for the mandatory automatic exchange of information that will be reported by reporting crypto-asset service providers to the competent authorities. Detailed rules concerning the obligations to be fulfilled by reporting crypto-assets service provides are laid down in Annex VI which is introduced by Annex III. As a first step, the rules provide for an obligation on the reporting crypto-asset service provider to collect and verify the information in line with due diligence procedures laid down by the proposal. As a second step, the reporting crypto-asset service providers have to report to the relevant competent authority information on the crypto-asset users, i.e. those who use the service provider to trade and exchange their crypto-assets. The third step concerns the communication of the reported information by the competent authority of the Member State that have received the information from the reporting crypto-asset service provider to the competent authority of the relevant Member State where the reportable crypto-asset user is resident.
Annex V, Section IV provides definitions that determine the scope of the rules for reporting.
–Who bears the burden of reporting?
The rules include definitions of what is a crypto-asset service provider, crypto-asset operator and reporting crypto-asset service provider.
A crypto-asset service provider means any legal person or undertaking whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis, and who is authorised in a Member State to provide crypto-asset services in accordance with Regulation XXX. This term is linked with Regulation XXX to keep a consistent definition. Furthermore, crypto-asset service providers are allowed to exercise activity in the EU through passporting and are listed in a register maintained by ESMA.
A crypto-asset operator means any natural person, legal person or undertaking whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis but who is not covered by the scope of Regulation XXX.
A reporting crypto-asset service provider is any crypto-asset service provider and any crypto-asset operator that conducts one or more crypto-asset services permitting reportable users to complete an exchange transaction.
The definition of reporting crypto-asset service provider encompasses crypto-asset service providers as defined in Regulation XXX and crypto-asset operators that do not fall under the scope of Regulation XXX (e.g. crypto-asset operator with ‘non-solicited’ EU resident crypto-asset users, crypto-asset operators that trade non-fungible tokens, etc.) and hence do not meet the conditions to be authorised under that Regulation.
Crypto-asset service providers receive authorisation under Regulation XXX in the Member State of the legal entity and thus will report in such Member State. Whereas, to cover crypto-asset operators, the proposal lays down in Article 8ad(7) obligations for a single registration with a Member State of their choice. The reporting will take place in such Member State. Annex VI, Section V, paragraph F lays down the details of the registration process. To ensure uniform conditions for the implementation of the proposed rules and, more precisely, the registration and identification of reporting crypto-asset service provider, subparagraph 3 of Article 8ad(11) confers implementing powers on the Commission to adopt a standard form. These powers are to be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council.
Only crypto-asset operators that do not fall under the scope of Regulation XXX, would be required to register in a Member State in accordance with Article 8ad(12). A crypto-asset service provider already authorised within the EU, pursuant to Regulation XXX, would be exempted from the single registration requirement.
As the crypto-asset operators may be resident outside the EU, the proposal foresees the relieving of the single registration and reporting obligation as provided for in this Directive which is dependent upon the determination of correspondent reporting and exchange mechanisms in relation to non-Union jurisdictions and Member States. This mechanism is similar to that included in Directive 2021/514 (DAC7) and has the same purpose of ensuring a level playing field and avoiding that service providers engage in forum shopping.
The Directive requires reporting by European Union and non-European Union crypto-asset operators, to the extent that such non-European Union operators have reportable users resident in the Union. This is essential to ensure a level playing field among all reporting crypto-asset service providers and prevent unfair comptetition.
The obligation of single registration and reporting for non-European Union operators, may be relieved, in cases where adequate arrangements exist, to ensure that corresponding information is exchanged between a non-Union jurisdiction and Member States.
These adequate arrangements will be determined by the Commission in accordance with the criteria and processes specified in Article 8ad. Where determined as correspondent, the registration and reporting obligation will be relieved and in the absence of such a determination, the registration and reporting obligations, as provided for in the Directive, shall still apply.
–Which transactions are reportable?
Reportable transactions are exchange transactions and transfers of reportable crypto-assets. Both, domestic and cross-border transactions are in the scope of the proposal and are aggregated by type of reportable crypto-assets.
–Whose transactions are reportable?
A crypto-asset user is an individual or entity that is a customer of a reporting crypto-asset service provider for the purposes of carrying out reportable transactions. An individual or entity, other than a financial institution or a reporting crypto-asset service provider, acting as a crypto-asset user for the benefit or account of another individual or entity as agent, custodian, nominee, signatory, investment adviser, or intermediary, is not treated as a crypto-asset user, and such other individual or entity is treated as the crypto-asset user.
Where a reporting crypto-asset service provider facilitates payments in crypto-assets for or on behalf of a merchant, the customer that is the counterparty to the merchant must be treated as a crypto-asset user. In such cases the reporting crypto-asset service provider is required to verify the identity of the customer in line with domestic anti-money laundering rules.
A reportable user is a crypto-ssset user resident in a Member State that is a reportable person. Excluded persons are: (a) an entity the stock of which is regularly traded on one or more established securities markets; (b) any entity that is a related entity of an entity described in clause (a); (c) a governmental entity; (d) an international organisation; (e) a central bank; or (f) a financial institution other than an investment entity described in Section IV E(5)(b).
Only the transactions of a reportable user are reportable.
A reporting crypto-asset service provider shall carry out due diligence procedures laid down in Annex VI, Section III in order to identify reportable users. The due diligence procedures apply to individual crypto-asset users as well as entity crypto-asset users to be identified as reportble users. The identification of such reportable users is done through self-certification that allows the reporting crypto-asset service provider to determine, for instance, the residence(s) of crypto-asset users. Through this process additional documentation pursuant to customer due diligence procedures may be collected.
Section III, paragraph A lays down the specific information on an individual crypto-asset user that a reporting crypto-asset service provider must collect.
Section III, Paragraph B lays down the specific information on an entity crypto-asset user that a reporting crypto-asset service provider needs to collect on an entity crypto-asset user. Those procedures apply for purposes of determining whether the entity crypto-asset user is a reportable user or an entity, other than an excluded person, with one or more controlling persons who are reportable person.
Section III, Paragraph C lays down the rules for the requirements of self-certification for individual crypto-asset users and entity crypto-asset users.
Section III, Paragraph D lays down the general due dilligence requirements.
The information, as collected and verified, is to be reported no later than 31 January of the year following the relevant calendar year or other appropriate reporting period of the reportable transaction. Reporting is to take place only in one Member State (i.e. single registration in Member State of choice or Member State of authorisation). A reporting crypto-asset service provider is to report in the Member State in which it is authorised under Regulation XXX. A reporting crypto-asset service provider that is not authorised under Regulation XXX is to report in the Member State in which it has registered in accordance with Article 8ad(11).
In accordance with amended Article 25(3), the reporting crypto-asset service provider has to inform each individual concerned that information relating to this individual will be collected and reported to the competent authorities as required under this proposed directive. The reporting crypto-asset serice provider must also provide all information the data controllers are required to provide under the GDPR. The reporting crypto-asset service provider has to supply each individual with all information and at the latest, before the information is reported. This is without prejudice to the data subject’s rights provided under the GDPR.
Information reported by a reporting crypto-asset service provider has to be communicated to the competent tax authorities of the Member States where the reporting crypto-asset service provider is resident for tax purposes or has received its authorisation, or where it is registered, within 2 months following the end of the calendar year to which the reporting requirements applicable to reporting crypto-asset service providers relate. Paragraph 3 of Article 8ad lays down which information is to be reported to those competent tax authorities of the Member States.
A Reporting Crypto-Asset Service Provider is taken to report to the competent authority of the Member State of its authorisation, tax residence, or registration the information no later than 31 January of the year following the relevant calendar year or other appropriate reporting period of the reportable transaction..
Such timely exchanges will provide tax authorities with a complete set of information, enabling the preparation of pre-populated yearly tax assessments.
The automatic exchange of information will take place electronically via the EU common communication network (CCN) by using an XML schema developed by the Commission. This is the common communication network used for the authomatic exchange of information under this Directive.
For the automatic exchange of information under this proposal, the information will be communicated to the central directory developed by the Commission and already used for the automatic exchange of information on advance cross-border tax rulings and cross-border arrangements.
If a crypto-asset user does not provide the information required under Section III after two reminders following the initial request by the reporting crypto-asset service provider, but not before the expiration of 60 days, the reporting crypto-asset service providers are to prevent the crypto-asset user from performing exchange transactions. (see Section V, paragraph A).
(ii) Administrative cooperation
• Penalties and other compliance measures
Effective penalties for non-compliance at national level
Article 25a on penalties is amended by specifically indicating that Member States must lay down rules on penalties applicable to infringements of national provisions adopted in accordance with the Directive and concerning Articles 8(3a), 8aa, 8ab, 8ac and 8ad. The penalties and other compliance measures provided for in the Directive are to be effective, proportionate and dissuasive. A minimum financial penalty is to apply in cases of non-reporting after two valid administrative reminders or when the provided information contains incomplete, incorrect or false data, amounting to more than 25 % of the information that should be reported.
(iii) Other provisions
• Use of information
Article 16 is amended with a new paragraph 7 that requires Member States to put in place an effective mechanism to ensure the use of information acquired through the reporting and the automatic exchange of information under Articles 8 to 8ad.Article 16 i is amended to ensure that information reported and exchanged under the Directive on administrative Cooperation can be used for purposes other than direct taxation, in situations where there is an agreement at EU level to use such information to implement sanctions in an international context. Such situations would in particular be those where decisions have been taken pursuant to Article 215 of the Treaty on the Functioning of the European Union regarding restrictive measures. Indeed, information exchanged under Directive 2011/16/EU may be very relevant for the detection of violation or circumvention of restrictive measures. In return, any potential breaches of the sanctions will be relevant for tax purposes since avoidance of restrictive measures will in most cases also amount to tax avoidance in relation to these assets. Given the likely synergies and close link between the two areas, authorizing a further use of the data is therefore appropriate.
• Reporting
Article 27 i is replaced by a provision obliging Member States to monitor and assess, for their own jurisdiction, the effectiveness of administrative cooperation in combating tax fraud, tax evasion and tax avoidance, in accordance with the Directive. For the purpose of the evaluation of the Directive, Member States must communicate annually the results of their assessment to the Commission. This amendment results in removing the biennial evaluation of the hallmarks for cross-border arrangements in Annex IV.
·Reporting of information on tax identification numbers
Article 27c is added in order to include a provision requesting Member States to ensure that the tax identification number of reported individuals or entities issued by the Member State of residence are included in the communication of the information referred to in Article 8(1), Article 8(3a), Article 8a(6), Article 8aa(3), Article 8ab(14), 8ac i and Article 8ad(3). The tax identification number is to be provided even though not specifically required by these Articles.
·Review of the provisions of Directive 2014/107/EU
As Council Directive 2014/107/EU (DAC2) implements within the EU the OECD Common Reporting Standard, this proposal takes account of amendments to the Common Reporting Standard which have been agreed on 26 August 2022 during the Common Reporting review process. These amendments extend the scope of the Common Reporting Standard to cover electronic money products and central bank digital currencies. Additional amendments have been agreed to further improve the due diligence procedures and reporting outcomes, with a view to increasing the usability of Common Reporting Standard information for tax administrations and limiting burdens on financial institutions, where possible.
·Identification services
Identification services are introduced as a simplified and standardised means of identification of service providers and taxpayers. This allows those Member States that so wish to use this format for identification without in any way affecting the flow and quality of information exchanged with other Member States that do not use identification services.
·Use of information exchanges for other purposes
In general, the Directive provides the possibility to use the information exchanged for other purposes than for direct and indirect tax purposes to the extent that the sending Member State has stated the purpose allowed for the use of such information in a list. The proposal removes the need to consult the sending Member State in cases where a use of information is covered in a list drafted by the sending Member State.
Furthermore, the proposal appropriately clarifies that information communicated between Member States may also be used for the assessment, administration and enforcement of customs duties, and anti-money laundering and countering the financing of terrorism.
·Date of application of the Directive
The Directive on administrative cooperation is to apply from 1 January 2026. Two exceptions are provided in the Directive. The provisions on the identification service apply from January 2025. Provisions on the verification on the tax identification number will only apply from January 2027.