EU Ministers Agree on Stricter Rules to Combat Crypto Tax Fraud

EU Ministers Agree on Stricter Rules to Combat Crypto Tax Fraud

Anastasiia Zapevalova
20 May 2023

The EU Parliament has approved for the first time common rules for all member countries that will regulate the use of various crypto assets, including popular cryptocurrencies such as Bitcoin and Ethereum, as well as tradable tokens protected by blockchain technology, such as NFTs.

During a recent meeting, EU economy and finance ministers agreed on stricter rules to combat individuals who use crypto assets to evade taxes in areas where authorities have limited control. These new rules aim to close tax avoidance loopholes and reduce the risk of cryptocurrencies being used as a means of tax fraud, Swedish Finance Minister Elisabeth Svantesson emphasized.

The Directive is due to come into force on 1 January 2026 after receiving approval from the European Parliament. The European Commission, which is responsible for implementing EU laws and regulations, expressed support for the ministers' decision, stressing that the measures would help put an end to tax evasion.

EU tax authorities are currently facing challenges in tracking income from crypto assets that can be easily traded cross-border. Consequently, Member States lose significant tax revenues. Under the new rules, all crypto asset service providers (CASPs) operating in the EU, regardless of size, will be required to report transactions made by customers residing in its territory.

In addition, there will be an automatic exchange of tax decisions between EU Member States regarding high-net-worth individuals to prevent attempts to evade taxes

There will also be a new Markets in Crypto Assets (MiCA) regulation that will ensure that asset service providers protect customers' digital wallets.

Another rule regarding the transfer of funds will also strengthen oversight of crypto asset transactions. The EU intends to gradually implement the rules starting in July 2024.

What does this mean for people who use cryptocurrencies for business and work?

The new rules are primarily aimed at strengthening supervision and combating tax evasion. These measures may have implications for people living in the EU who use cryptocurrencies to receive salaries or conduct other business transactions.

First, closing loopholes and increasing reporting requirements for crypto asset service providers (CASPs) means tax authorities will have better access to information about cryptocurrency transactions. This could lead to increased scrutiny of people using cryptocurrencies to generate income. It is important for such individuals to ensure that they comply with tax laws and fully report their income from crypto assets.

In addition, the automatic exchange of tax decisions between EU member states aims to combat attempts to hide money from tax authorities. First of all, this applies to wealthy individuals. Those who choose to receive their salary or business income in cryptocurrency should be aware that if they fail to pay taxes on this income, they may be charged with tax fraud.

At the same time, EU efforts to regulate the cryptocurrency market and reduce the risk of tax fraud should strengthen consumer protection measures. This ensures that people using cryptocurrencies for various financial transactions have more security when dealing with CASP. The accompanying Markets in Crypto Assets (MiCA) regulation aims to protect customers' digital wallets and should provide a more secure environment for managing and storing crypto assets.

While the exact impact on individuals receiving wages in cryptocurrency in the EU will depend on how these rules are applied and implemented in practice, such individuals will need to be aware of their tax obligations and comply with new legislation related to cryptocurrencies . Consulting with tax professionals or financial advisors familiar with cryptocurrency taxation can help navigate new laws and requirements.

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