Crypto providers will have to report details of their EU clients’ transactions to national tax authorities within the bloc, under a bill set to be proposed by the European Commission next week.
The new law, inspired by international standards designed to curb crypto tax evasion, could also apply to stablecoins, derivatives and non-fungible tokens (NFTs), and force even non-EU based crypto providers to register within the bloc, the document reveals.
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,” said a draft of the document proposing the bill seen by CoinDesk.
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 plans 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.
“Such crypto-asset service providers have to register in a Member State” of the EU, the document said, adding that “limiting the scope solely to EU-based crypto-asset service providers could significantly decrease the tax revenues of each option.”
The rules would extend beyond an existing crypto-asset law known as MiCA, covering companies offering non-fungible tokens (NFTs), and foreign companies that have incidental clients within the bloc.
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 Directive applies to both centralized and decentralized platforms as well as small or recently established businesses,” the bill said.
“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,” the document said, with providers urged to consider case-by-case whether NFTs are used for payment or investment purposes.
The EU tax bill is scheduled for approval at a Dec. 7 commission meeting.
