We explain the content and significance of the new rules below.

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Background information

With the expansion of the internal market, there is a need for greater cooperation between Member States' tax authorities in the EU. The DAC Directives attempt to contribute to this by introducing a set of rules for when actors in the Member States have a duty to notify or report information that is relevant to tax law.

One of these areas relates to crypto-assets. While MiCA imposes certain regulatory obligations on covered entities, MiCA contains no legal basis for sharing data collected by MiCA-covered entities. As a result, tax authorities in Denmark, for example, have no easy way to access data collected by tax authorities in other member states. However, DAC8 does away with this.

DAC8 is a directive that gives Member States a number of powers to cooperate at an intergovernmental level to combat tax evasion in the area of crypto-assets, among other things.

New regulation

DAC8 requires crypto-asset service providers to exchange information with the relevant tax authorities. Thus, crypto-asset service providers have an obligation to report customer information and information about customer transactions to the tax authorities.

The obligations under DAC8 will in practice take place in the following three steps:

1. Covered entities are required to collect information about their users and users' transactions. See below for the exact information to be collected.
2. Covered entities must report the collected information to the relevant tax authorities.
3. The tax authority that received the information in step 2 above must share the information with the tax authority where the user is resident.

Who is covered by DAC8

DAC8 obviously applies to all providers of crypto-asset services within the EU, as defined in MiCA, as well as operators of crypto-assets. The latter should be understood as entities that enable an exchange transaction to be performed or crypto-assets to be transferred.

In addition, the covered entities will also be entities based outside the EU. These entities must register in one Member State in order to comply with the obligations of DAC8. In practice, this means that trading platforms such as Coinbase and Binance, both based outside the EU, must be registered in an EU Member State, after which the trading platforms are required to share user and transaction data with the tax authorities in the Member State of registration. Subsequently, this Member State must share this information with the tax authorities of the countries where the users in question are based.

What information are we talking about?

In short, crypto-asset service providers with reporting obligations must report the following information about themselves, their users and the transactions carried out:

• About the reportable crypto-asset service providers: name, address, tax identification number (TIN) and the international registration number (LEI code).
• About their users: name, address, state(s) of residence, TIN number, date and place of birth.
• About the transactions (transfer or exchange to other crypto assets or fiat currencies): full name of the crypto assets, number of crypto assets, number of transactions and gross amounts paid and received.

According to DAC8, the reporting entities must make real and actual reports. Failure to comply with the obligations is subject to penalties. For example, fines can be imposed on reporting entities for failure to report after two reminders, and if a user does not provide the required information after two reminders, the user may not complete the transaction.

DAC8 will therefore give tax authorities insight into a significantly larger set of data - both regarding crypto-asset users and crypto-asset transactions. As such, DAC8 will affect both individuals and crypto-asset service providers. The latter is affected in the form of the above-mentioned obligations, which further leads to the tax authorities being able to compare the data submitted by crypto-asset service providers with the information contained in the tax returns of crypto-asset users. This gives the tax authorities a much greater opportunity to verify the accuracy of the tax returns.

When do the rules come into effect?

The directive entered into force on November 13, 2023 and must be implemented into national law by December 31, 2025, after which it will take effect for the covered entities.

The directive can be found here.

Our assessment

The tax treatment of crypto-assets has largely been limited to the information that taxpayers themselves have shared with the tax authorities. The Danish Tax Agency has on several occasions obtained information from Danish trading platforms (mentioned here), but this access has only been limited to Danish entities. This is in contrast to the tax treatment of trading in financial instruments, which relies more heavily on third-party reporting at interstate level.

DAC8 will introduce a set of rules that will ensure a more transparent tax framework where tax audit cases will rely more on automatically reported information from third parties rather than manually shared information from the taxpayer.

If you have any questions about the rules in DAC8, we are of course at your disposal.

Contact us today

As Denmark's only specialist office within cryptocurrency, Samar Law has extensive experience in advising on matters relating to the taxation of cryptocurrency. If you want advice on taxation of cryptocurrency, we encourage you to contact lawyer Payam Samarghandi at payam@samarlaw.dk or mobile 60793777 for a non-binding conversation.

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