The European Commission announced on Thursday that it plans to require crypto service providers residing in the European Union to declare customer holdings and details of transactions, including personal information like place of birth and place of residence.
However, the body representing the European Union (EU) said it is continuing to investigate methods by which the restrictions might be enforced on wallet providers or exchanges outside the EU.
This initiative is part of the organization’s effort to increase transparency in the tax system and combat tax evasion and fraud in the crypto sector, especially by those who store crypto abroad.
Paolo Gentiloni, the EU commissioner for tax, said, “Due to the anonymity associated with crypto-assets, many users who make a high income while trading in these assets goes under the radar of national tax authorities. And this is not acceptable.”
When questioned on how the EU intends to implement the regulation on crypto companies that are not part of the union, Gentiloni responded thus, “We will work on it. What is important to us is that these measures target EU residents. Even though they use crypto service providers from elsewhere.”
The reforms proposed by Gentiloni would benefit the EU’s Markets in Crypto Assets Regulation (MiCA), making it possible for international businesses to acquire EU customers via a process known as reverse solicitation.
The proposed tax policy requires crypto service firms outside the EU who have customers in the EU to register and report transaction details inside the union. However, this requirement may provide administrative issues in a sector where businesses do most of their business online and often claim no headquarters.
As outlined by the EU policymakers in a directive, introducing the obligation to report crypto investment income would enable member states to obtain a more precise picture of what taxes they are owed, which could result in additional income amounting to €2.4 billion ($2.5 billion). And according to the commission, standard reporting rules would also help the industry.
The widely publicized plans, which will also apply to certain producers of non-fungible tokens (NFT), have elicited an instant response from observers and participants in the crypto industry.
The European Crypto Initiative stated the plan, expressing its “concern that it would apply to a far wider range of obliged entities and individuals” than MiCA. The lobbying group interpreted this to mean that the plan would “dilute MiCA’s initial concept and potentially weaken its effect.”
Others have taken a more level-headed approach to the plans, pointing out that the developed nations that make up the OECD (Organization for Economic Co-operation and Development) have already developed norms to prevent tax evasion in overseas bank accounts; these are the same norms that they want to apply to cryptocurrency now.
According to Danny Talwar, head of Koinly, who was interviewed by CoinDesk, “Exchange of information across borders already exists in the tax realm, and regulators are willing to broaden the scope of similar data sharing agreements to crypto asset transactions.”
Also, Dea Markova, managing director of Forefront Advisers, spoke with CoinDesk about the idea and stated, “the initiative stands to impact global players that may have otherwise avoided the necessity to become licensed.”
The Crypto Community Pushes back against the EU
Industry advocates fear the new regulation would impose an undue burden on crypto firms operating within the EU.
Simon Polrot, president of the European Crypto initiative, mentioned that the details requested from the Crypto Assets Service Providers (CASPs) are significant but complex to calculate. The estimated cost for service providers was underestimated, and the pieces to be produced and sent will be enormous. Will tax authorities in member states have the means to process this information?”
As part of the legislative debate, there is an eight-week window for feedback on the proposed bill, where responses will be presented to the European parliament and council. A vote on the proposed legislation is expected to pass in October.
