Under a proposal slated for submission by the European Commission the following week, cryptocurrency providers would be compelled to disclose the transactions of their EU clients to national tax authorities across the bloc.
According to the document, the proposed law, which is influenced by international standards intended to prevent crypto tax fraud, may also apply to stablecoins, derivatives, and non-fungible tokens (NFTs) and require non-EU crypto providers to register within the union.
The requirement to disclose income obtained through crypto-asset investments and the exchange of such information will aid Member States in getting a complete set of information to collect tax revenues due.
Existing tax regulations, known as the Directive on Administrative Cooperation, aim to prohibit people from stashing money in foreign bank accounts to evade taxation; nevertheless, officials are increasingly concerned that crypto accounts provide a means of evasion.
The measure is also necessary to properly implement financial restrictions imposed on Russia, citing worries that “crypto-assets could be used to bypass penalties” aimed at more traditional assets.
Based on the plans, crypto asset providers would be forced to collect and verify client information, including names, addresses, social security numbers, and dates of birth, which would subsequently be given to tax authorities in the user’s country of tax residency.
The prohibitions would include firms issuing non-fungible tokens (NFTs) and foreign corporations with accidental clients in the bloc.
The document noted that “Such crypto-asset service providers have to register in a Member State” and that “limiting the scope solely to EU-based crypto-asset service providers could significantly decrease the tax revenues of each option.”
MiCA, on the other hand, requires EU-based cryptocurrency businesses to register and comply with minimal governance norms, while exempting other Web 3 technologies like NFTs. According to the document, crypto providers and tax administrations will be responsible for hundreds of millions of euros in IT and other start-up costs associated with implementing the regulations.
According to the legislation, “the Directive applies to both centralized and decentralized platforms, as well as to small and newly formed businesses.”
“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,” based on the document, with providers urged to consider on a case-by-case basis whether NFTs are used for payment or investment purposes.
As stated in the document, the commission was “inspired” by the work of the OECD, a club of wealthy nations that have set standards for tax administrations to share crypto data, and it follows EU activities targeted at preventing money laundering involving cryptocurrencies.
The EU tax bill is scheduled to be passed on December 7 during a commission meeting.
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