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In: Cryptocurrency

The European Commission has recently approved a new tax directive for crypto companies within its jurisdiction. This directive, which encompasses a political agreement of the Council of Ministers of the European Union (EU), sets forth rules for fiscal transparency that must be adhered to by all companies facilitating cryptocurrency transactions for clients within the region. 

European Commission Tightens Laws On Taxation In The crypto Industry 

This development marks a significant step in the European Union’s efforts to regulate the growing cryptocurrency sector. According to a <a href="https://taxation-customs.ec.europa.eu/news/new-tax-transparency-rules-will-help-member-states-shine-light-crypto-asset-sector-2023-05-16_en” rel=”nofollow noopener” target=”_blank”>press release from the Commission’s Directorate of Taxation and Customs Union, these new rules will come into effect on January 1, 2026. As a result, all crypto asset service providers (VASPs) will be required to report their customers’ transactions, irrespective of their magnitude. 

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In addition to registering their companies in the member state where they operate, these providers must provide their clients with accurate identity data and transmit the necessary information about users and their monetary movements to the receiving financial entities.

Furthermore, the directive calls for the implementation of an automatic exchange of information on cross-border tax resolutions, applying to individuals regardless of the amount of cryptocurrencies transferred or their equivalent value. 

These obligations extend to all financial entities providing services related to electronic money and central bank digital currencies (CBDCs). Consequently, once the digital euro project initiated by the European Central Bank is completed, transactions conducted with CBDCs and user data will also be subject to sharing. 

Concerns Remain On Privacy And Data Protection Laws

This latest agreement on fiscal transparency was made based on a proposal prepared by the Commission. It will complement the crypto Asset Market Regulation (MiCA) and the Transfer of Funds Regulation (TFR), both approved by the European Parliament last April. 

The TFR enables tracking of bitcoin and other cryptocurrency transactions in Europe to identify potential illicit activities, aligning with the Financial Action Task Force’s (FATF) “Travel Rule,” which mandates the provision of information on fund origins and beneficiaries.

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While these regulations have raised concerns regarding privacy and data protection laws associated with cryptocurrency transactions, the European Commission views them as essential in combating tax evasion and money laundering. They argue that tax authorities lack crucial information to effectively monitor income generated through the use of crypto-assets, limiting their ability to enforce tax payments and depriving states of significant tax revenue.

The European Commission noted that these rules are consistent with the Organization for Economic Cooperation and Development’s (OECD) proposal on crypto-assets, which seeks to establish a global framework for fiscal transparency and facilitate reporting and information exchange among cryptocurrency companies. 

This development by the European Commission continues the global regulatory moves governments made. Nigeria recently announced the launch of a policy document that evaluates the blockchain industry and would serve as a framework for regulating digital assets. 

Bitcoin trading below $27,000: source @Tradingview

Speaking of finance, Bitcoin has continued to maintain its trading levels below $27,000. At the time of writing, Bitcoin is trading for $26,834 and up 0.2% in the past 24 hours.

Featured Image from iStock.com, chart from TradingView

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