Crypto providers will have to report details of their European Union clients’ transactions to national tax authorities within the bloc, under a bill set to be proposed by the European Commission next week.
The new law, inspired by international standards designed to curb crypto tax evasion, could also apply to stablecoins, derivatives and non-fungible tokens (NFT), and force even non-EU based crypto providers to register within the bloc, the document reveals.
“The obligation to report income earned through crypto-asset investments and the exchange of such information will help Member States receive a full set of information in order to collect tax revenues due,” said a draft of the document proposing the bill seen by CoinDesk.
Existing tax rules known as the Directive on Administrative Cooperation seek to avoid people stashing money in foreign bank accounts to avoid taxation – but officials are now concerned that crypto accounts provide an escape route.
The move is also needed to better enforce financial blocks placed on Russia, the document added, citing fears that “crypto-assets could be used as a means of avoiding sanctions” which focus on more traditional assets.
Under the plans, crypto asset providers would have to collect and verify information about their users such as names, addresses, social security numbers and dates of birth, which would then be sent to the tax authorities in the user’s country of tax residence.
The rules would extend beyond an existing crypto-asset law known as MiCA, covering companies offering non-fungible tokens (NFT), and foreign companies that have incidental clients within the bloc.
“Such crypto-asset service providers have to register in a Member State” of the EU, the document said, adding that “limiting the scope solely to EU-based crypto-asset service providers could significantly decrease the tax revenues of each option.”
MiCA, in contrast, requires EU-based cryptocurrency companies to register and have minimum governance norms, but carves out other Web 3 innovations such as NFTs. Total IT and other startup costs for implementing the measures will amount to hundreds of millions of euros, borne by crypto providers and tax administrations, the document said.
“The Directive applies to both centralized and decentralized platforms as well as small or recently established businesses,” the bill said.
“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,” the document said, with providers urged to consider case-by-case whether NFTs are used for payment or investment purposes.
The EU tax bill is scheduled for approval at a Dec. 7 commission meeting.
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