European Commission Proposes New Directive to Tax Crypto Assets, Aims to Close Regulatory Gap

Fast Facts:

• The European Commission is drafting a proposal to tax crypto assets, with an estimated revenue of $2.5 billion.
• The proposed directive aims to close regulatory gaps and combat tax evasion in the crypto industry.
• Crypto service providers will be required to report to national tax authorities under the new directive.
• The directive focuses on regulated crypto asset service providers and covers decentralized assets, stablecoins, and certain non-fungible tokens.
• The proposal is part of the EU’s larger regulatory framework, including the MiCA proposal, to bring clarity and protect investors in the crypto-asset sector.

The European Commission is making significant strides in its efforts to regulate the cryptocurrency landscape. A leaked draft document suggests that the Commission is drafting a new directive aimed at taxing crypto assets, with an expected revenue of approximately $2.5 billion (€2.4 billion). This proposal seeks to address the regulatory gaps and potential tax evasion in the crypto industry, while also ensuring fair taxation across all European Union (EU) member states.

Proposed Tax Directive to Combat Tax Evasion

The leaked draft indicates that the European Commission intends to adopt the new tax proposal in the near future. The directive, if implemented, will come into effect from early 2025, with most provisions taking effect in 2026. By incorporating crypto assets under the EU’s series of directives on administrative cooperation, the Commission aims to close any existing tax evasion loopholes and ensure proper tax collection within the EU.

Reporting Obligations for Crypto Service Providers: Strengthening Oversight and Reporting Requirements

To facilitate effective tax enforcement, the proposed directive mandates that all crypto service providers report to their respective national tax authorities. Although the initial draft targeted both centralized and decentralized networks, the latest document primarily focuses on regulated crypto asset service providers. This requirement would extend to all national tax authorities, ensuring comprehensive reporting across the EU.

“The European Commission’s proposed directive on taxing crypto assets not only aims to generate substantial tax revenue but also seeks to address the regulatory gaps and ensure fair taxation within the EU. This demonstrates the Commission’s commitment to fostering transparency and accountability in the crypto industry.”

The draft proposal further clarifies the definition of crypto assets as those “issued in a decentralized manner, as well as stablecoins, and certain non-fungible tokens.” However, the directive will only be applicable when these crypto assets are utilized for payments or investments. It is important to note that the proposal is a directive rather than a legislative regulation, allowing EU member states the flexibility to determine the most suitable approach for implementing additional provisions.