DAC 8 is coming soon, and trading crypto assets in the EU will be subject to reporting obligations

Source: TaxDAO

Financial regulations are evolving to adapt to the evolving digital landscape. The EU is taking important steps to include cryptocurrencies and other digital assets in its regulatory framework and has issued the Administrative Cooperation Directive (DAC 8) to help achieve this goal. DAC 8 aims to increase transparency and help combat tax evasion related to crypto assets. The launch of DAC 8 is a significant step forward for EU member states in crypto asset management and reporting.   

1. DAC 8 Overview  

DAC 8 expands the existing EU Financial Services Tax Directive framework to include crypto assets. Drafted for crypto asset reporting, DAC 8 aims to ensure that information related to cryptocurrency and digital token transactions is automatically exchanged between member states in a similar way to how general financial account information is shared today under the Common Reporting Standard (CRS). The move is seen as a direct response to the growing use of crypto assets in financial transactions and aims to narrow the current information gap between tax authorities and crypto asset transactions to help tax authorities establish a clear understanding of these activities. DAC 8 will improve tax authorities' understanding of crypto asset transactions and activities and enable them to effectively enforce tax laws. DAC 8's scope of crypto asset reporting The scope of DAC 8 covers a wide range of crypto assets, including the more well-known cryptocurrencies such as Bitcoin and Ethereum, as well as utility tokens, stablecoins and security tokens. The definition of crypto assets in DAC 8 is interpreted by the Regulation on Markets in Crypto Assets (EU 2023/11114, also known as MiCA), which defines crypto assets as "digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology". The wording of "similar technology" is intended to ensure that the legislation can cope with future technological changes in this rapidly evolving industry. DAC 8 targets crypto-asset service providers (CASPs), including but not limited to cryptocurrency exchanges, wallet providers, and platforms that facilitate crypto-asset transactions. Under DAC 8, these service providers will be required to collect and report information about their users and the crypto-asset transactions they process.  

Notably, DAC 8 appears to go beyond MiCA’s provisions by adding “pledge and lending” to the definition of “crypto-asset services”. Interestingly, the definition of what constitutes pledge and lending is not included, which could lead to implementation differences in member states when it comes to incorporating it into local law.  

3. DAC 8’s Crypto-Asset Reporting Requirements 

Like other areas in the EU Administrative Cooperation Directive, DAC 8’s reporting requirements are comprehensive. Crypto-asset service providers will need to identify the initiators and beneficiaries of crypto-asset transactions. The information that will need to be collected will include details such as name, address, tax number, country of residence within the EU, and the total value of the transaction. As can be seen, the goal is to create a transparent record and reporting line that tax authorities can use to query and verify whether individuals and entities are fully meeting their tax obligations.  

Its purpose is similar to traditional banking transactions, meaning that cryptoasset transactions can be tracked and traced back to the cryptoasset holder. For cryptoasset service providers, it introduces a new layer of regulatory compliance that requires robust systems to securely collect, store and transmit data.  

4. DAC 8’s Cryptoasset Due Diligence Requirements 

DAC 8 introduces due diligence procedures applicable to individual clients and legal entities for the purpose of identifying reportable cryptoasset users based on a self-certification form. It introduces the concept of a due diligence procedure when establishing a new business relationship with a new client to ensure that reportable information is obtained from the outset of the business relationship once the client has been identified as a reportable user. From January 1, 2026, cryptoasset service providers are obliged to complete a self-certification form for establishing a relationship with a new cryptoasset user. For existing clients with a business relationship established prior to this date, a catch-up provision is also included, allowing crypto-asset service providers to effectively compile due diligence information on existing clients before January 1, 2027.  

5. Types of Reportable Transactions for DAC 8 

For purposes of DAC 8, types of reportable crypto-asset transactions may include: 

• Acquisitions for legal tender;

• Disposals for legal tender;

• Acquisitions for other reportable crypto-assets;

• Reportable retail payment transactions: defined as transfers of reportable crypto-assets for goods or services valued at more than $50,000;

• Transfers by reporting crypto-asset service providers to distributed ledger addresses not known to be associated with virtual asset service providers or financial institutions.

6. Challenges and Implementation

The implementation of DAC 8 presents several challenges. Tracking and reporting crypto transactions is technically demanding and will require significant investment, as many cryptoasset service providers will need to upgrade their systems and processes to comply with the new rules. As always, balancing user privacy with regulatory compliance in an already sensitive community presents further challenges.  

EU Member States also play an important role in developing the detailed national laws that translate DAC 8 into legislation, which may differ in how they are implemented or interpreted in different countries. While the timeline for first reporting in 2027 seems a bit far away, there is clearly much work to be done, and cryptoasset service providers should start preparing as soon as possible to adapt, mitigate the impact, and be prepared.  

7. Conclusion

The introduction of DAC 8 is likely to have a significant impact on the cryptoasset industry. On the positive side, it has the potential to enhance the legitimacy of crypto-assets as part of the financial system, thereby attracting more institutional investors. On the negative side, it increases the regulatory burden on crypto-asset service providers, which may lead to consolidation by smaller players in the industry as they struggle to meet the new requirements.  

DAC 8 appears to be a key step in integrating crypto-assets into the global financial regulatory framework. While this clearly presents challenges for the crypto-asset industry, it also presents an opportunity to enhance trust and stability in this rapidly evolving market. As the directive is implemented, all stakeholders need to stay informed and prepared for the challenges ahead.