Increased tax regulations for crypto holders and providers

Belgian Crypto holders and crypto providers be prepared: increased tax regulations expected in the near future

Some people predict that crypto-assets will conquer the world, others are still hesitant about this blockchain based technology. Regulators have however understood the growing importance of this rather ‘new’ financial instrument. To enable different tax authorities to have a better view on crypto-transactions and ensure a fair and efficient taxation of proceeds obtained using cryptocurrency, the European Commission proposed at the end of 2022 to extent the scope of the DAC directive via the so-called DAC8 proposal, which has now been approved by the Council on October 17, 2023. Recently the European Parliament approved also the MiCA regulation. General principles and a status update with respect to these publications can be found in this alert.
 

Pillars of the DAC8

The DAC directive (Directive on Administrative Cooperation) dates back to 2011 and allows for the collection and exchange between Member States of tax related information about individuals and companies. Goal of the Directive is to combat tax evasion, fraud and to ensure an increased tax transparency between EU Member States. With the recent approval of the DAC8 directive, digital transactions and more in particular crypto-exchanges are now targeted.

As crypto-assets can be transferred and kept without an intervention of traditional financial intermediaries or regulators, and tax authorities are not always able to track transactions and capital gains made, a new tax transparent framework became much-needed. The general principles of DAC8 closely follow the OECD’s Crypto-Assets Reporting Framework (CARF) and CRS rules while referring to the definitions for service providers and crypto assets as used in the EU MiCA regulation (see below). As a result, crypto-asset service providers will as from January 1, 2027 be required to report information on transactions of clients residing in the EU. Crypto providers not based in the EU will also have to adhere to the new DAC8 rules if they provide services to EU residents.

Crypto-asset service providers will be required to report all information related to cryptocurrency transactions and personal information of taxpayers to the relevant authority in the Member State. This includes the name and type of the crypto-asset, the transaction value, and the number of transactions. Additionally, the crypto-institution must disclose the name, address, Member State of residence and TIN number of the crypto holder. As stated in the DAC8 directive, non-reporting of the above information might lead to financial penalties.
 

Recently approved Regulation on Markets in Crypto-Assets (MiCA)

The providers of cryptocurrencies can also expect additional compliance requirements in the near future. On April 20, 2023 the European Parliament adopted the regulation on markets in crypto-assets (MiCA), establishing harmonized rules for crypto-assets at EU level. MiCA will put in place a comprehensive framework for crypto-asset issuers and service providers, while consumers will be better informed about the risks, costs and changes linked to transactions. Providers will also be obliged to detect and stop criminal crypto flows and to be fully compliant with the current set of anti-money laundering obligations.

This regulation, that will take effect as from next year, will lead to more legal certainty and security in order to protect the consumers from the risks associated with the crypto business.
 

Impact for the Belgian crypto holder?

The DAC8 directive and related exchange of information will provide detailed information about crypto transactions to the Belgian tax authorities, even for transactions via crypto-asset service providers located in other EU Member States or outside the EU. Individual Belgian taxpayers should thus make sure to be compliant with tax legislation regarding the reporting of profit gains on crypto transactions in their Belgian tax return as professional or diverse income, or build a case to defend that the crypto transactions should be considered as part of the normal management (as a good housefather/mother) of an individual’s assets and capital gains can therefore be considered as free of tax.

It is also important to note that Belgian taxpayers who hold foreign accounts are currently required to report the existence of such accounts to the Central Point of Contact of the National Bank of Belgium. Whether this reporting obligation applies to foreign crypto-wallets will depend on several factors. It is recommended to consult your trusted tax advisor for further guidance on compliance and reporting requirements related to foreign crypto-wallets.
 

So what’s next?

The DAC8 directive and the approved MiCA regulation will have a significant impact on compliance requirements for crypto holders and providers. Individual taxpayers as well as providers should make sure to remain compliant with the changing regulation in this rapidly evolving market. At EY, we understand that keeping up with the latest tax regulations can be challenging. That's why we're here to help. Our team of experts is ready to assist you with any questions you may have regarding this topic. If you want to stay up to date with the latest developments in the field of crypto, we recommend that you subscribe to our upcoming tax alerts. Our alerts will keep you informed of any updates or changes to tax regulations that may impact your business.