EU Seals Off Ways to Evade Cryptocurrency Taxes
The Council of Europe has enacted the final amendments to the MiCA regulation pertaining to individual taxation. Cryptocurrencies have now been added to the list of assets eligible for tax deductions.
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On May 16, the European Council announced that its representatives have agreed on amendments to the directive concerning individual taxation. According to the Council, the released document considerably fortifies the existing legislative framework by broadening taxpayers' responsibilities and enhancing cooperation between tax administrations. The amendments primarily address two areas: reporting and the automatic exchange of information about transactions with crypto assets, as well as information about preliminary tax decisions for affluent individuals.
To put the official communique in simpler terms: “We have decided to expand our oversight over retail investors, and to ensure no one slips through the cracks, we will create a new system that will monitor your activities even beyond the borders of your home country.”
The primary objective of these amendments is to tackle the problem related to the privacy of crypto-income. The decentralized nature of digital assets impedes tax authorities from enforcing legislation overseas. To address this, the Council has decided to mandate the automatic exchange of information between the fiscal authorities of the 27 EU countries. All crypto companies registered in the EU will now be obliged to automatically forward information about all transactions using alternative payment methods, including non-custodial wallets, to the regulators.
The technical implementation of this has yet to be clarified. It is possible that companies analyzing blockchain data will be engaged in the process.
This measure aims to facilitate tax collection from citizens who store (or invest) their digital assets outside their jurisdiction in order to conceal their income.
The press release mentions that the EU is making it harder for criminals to circumvent anti-money laundering rules using cryptocurrencies. It is unclear what threshold amounts are being referred to. The only specified detail is that the reports will contain the full data of the sender and receiver, in addition to the transaction amount.
The new law explicitly extends to any assets utilized on the blockchain, including stablecoins and NFTs.
Elisabeth Svantesson, the Sweden's Finance Minister, expressed the following remark during a briefing:
Today’s decision is bad news for those who have misused crypto-assets for their illegal activities, to circumvent EU sanctions or to finance terrorism and war. Doing so will no longer be possible in Europe without exposure – it is an important step forward in the fight against money laundering.
This development may indeed not be very encouraging, particularly when the intricacies of European bureaucracy and the traditionally excessive enthusiasm of such directive's enforcers are taken into account. It is sensible to anticipate a negative response from cryptocurrency platforms, and possibly, a relocation of some to jurisdictions with more lenient legislation.
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