EU to Introduce Strict Tax Rules for Regulation of Crypto Transactions

EU to Introduce Strict Tax Rules for Regulation of Crypto Transactions

The European Union (EU) Ministers agreed to introduce stronger rules to resolve the tax fraud issues associated to cryptocurrencies, as Brussels bolsters its efforts to regulate the volatile sector.

Last month, the 27-member bloc's parliament passed the world's first comprehensive rules covering crypto assets, a term used to describe cryptocurrencies such as bitcoin and Ethereum as well as tradable tokens, which give their value a guarantee based on blockchain technology, such as NFTs, which are backed by their value.

In the EU economy meeting, the finance ministers consented to formulate rules to investigate individuals who stash their cash where tax authorities have no oversight.

Swedish Finance Minister Elisabeth Svantesson said, the rules will close loopholes that allow people to avoid taxation on their income using crypto assets.

“This reduces the risk of crypto assets being used as a safe haven for tax avoidance and tax fraud,” she added in a statement.

The European Commission, the EU’s executive arm charged with implementing EU laws and regulations, welcomed the minister’s approval, adding that it would also help curb tax evasion.

Currently the tax authorities in the EU lack the information they need to monitor proceeds from crypto assets, which are easily traded across borders, it said.

As a result, member stated that were unaware of the important tax revenues, the commission reported.

The rules will force all crypto asset providers (CASPs) based in the EU, regardless of their size, to report the transactions of clients who reside in the bloc.

The third measure is the automatic exchange of tax rulings within the European Union that are referring to the wealthiest individuals in order to target those who attempt to hide money from the tax authorities.

The directive is expected to come into force by 1 January, 2026 after the European Parliament adopts its position.

As part of the agreement, the ministers also endorsed the Markets in Crypto Assets (MiCA) regulation, which will ensure that crypto asset service providers protect customers' digital wallets; as well as a second on fund transfers that will allow for greater oversight of crypto assets trades.

Essentially, the EU predicts that as a result of this, criminals will be unable to use cryptocurrencies to engage in illegal activity such as money laundering. The rules will progressively come into force from July 2024.