Cryptocurrency traders beware: The European Union may have a tax surprise imminent.
The European Commission’s proposal to tax cryptocurrencies estimates that taxes on digital assets could raise up to 2.4 billion euros ($2.5 billion), according to a leaked draft. The proposal, due to be approved by the committee this week, claims to bridge the “regulatory gap” and eliminate opportunities for tax evasion for cryptocurrency investors as well as guarantee member states to avoid tax shortfalls.
EU crypto service providers will need to report to national tax authorities, according to the draft, which defines crypto assets as “issued in a decentralized manner, as well as stablecoins and certain non-fungible tokens.” To apply the rules, a crypto asset must be used as a method of payment or investment, with the possible exceptions of “a limited network and certain interest tokens.”
A spokesperson for the European Commission said they could neither confirm nor deny any details in the document.
Defining the taxable event in crypto markets is likely to remain a challenge as negotiations on the proposal develop in EU institutions. But by targeting service providers in the directive, authorities will have easier access to necessary information from crypto users as the commission looks to reduce the “administrative burden” of the industry.
directing, not organizing
Since the proposal is a directive as opposed to a regulation, as it is in EU tax matters, member states will be free to decide how to implement the provisions. It also complies with internationally recognized standards for crypto tax reporting as defined in an OECD report published in October.
An older version of the document shows that the directive would have applied to both centralized and decentralized platforms. However, the latest version removes this distinction, stating that the rules apply to regulated digital asset service providers.
This draft proposal sweeps digital assets into the EU’s series of Directives on Administrative Cooperation, which set out how member states need to report certain information for tax purposes. Since direct tax policy is not coordinated across the bloc, tax reporting directives ensure that citizens do not evade taxes in other countries.
The document notes that some of the rules will begin to apply as early as 2025, and most will come into force in 2026.
