- EU ministers have agreed on stronger rules to combat the use of cryptocurrencies in tax fraud to regulate the volatile sector.
- The rules will close loopholes that allow people to avoid taxation on their income using crypto assets.
- The directive will come into force on January 1, 2026, and will force all crypto asset providers based in the EU to report their clients’ transactions.
European Union Backs Tougher Tax Rules on Crypto Transactions
The European Union (EU) has agreed on stronger rules to regulate the volatile cryptocurrency sector and combat tax fraud. The EU ministers’ agreement will close loopholes that allow people to avoid taxation on their income using cryptocurrencies. 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 directive will come into force on January 1, 2026, after the European Parliament adopts its position.
Regulators worldwide are increasingly worried about the lack of oversight of the digital currency sector. The European Commission, the EU’s executive arm charged with implementing EU laws and regulations, welcomed the ministers’ approval, adding that it would also help curb tax evasion. Tax authorities in the EU currently lack the information they need to monitor proceeds from crypto assets, which are easily traded across borders. As a result, member states are deprived of important tax revenues, the commission added.
The rules will progressively come into force from July 2024, and they will make it harder for criminals to use cryptocurrencies for illegal activity such as money laundering. The EU has already taken steps to protect investors and approved the world’s first comprehensive rules covering crypto assets last month. The new rules cover cryptocurrencies such as bitcoin and ethereum and tradable tokens whose value is secured using blockchain technology, such as NFTs.
In addition to the above measures, the EU ministers also backed the Markets in Crypto Assets (MiCA) regulation that will ensure crypto asset service providers protect customers’ digital wallets and a second regulation on fund transfers that will lead to greater oversight of crypto assets trades. The EU believes that these measures will reduce the risk of crypto assets being used as a safe haven for tax avoidance and tax fraud.
The EU’s move to implement tougher tax rules on crypto transactions is a significant step towards regulating the volatile cryptocurrency sector and preventing tax fraud. The new rules will force all crypto asset providers based in the EU to report their clients’ transactions, which will make it harder for criminals to use cryptocurrencies for illegal activities. These measures will help curb tax evasion and increase tax revenues for member states. As cryptocurrencies continue to gain popularity, it is crucial to regulate the sector to protect investors and prevent financial crimes.
Source = Editorial Times