Crypto-Asset Reporting Framework (CARF), Directive on Administrative Cooperation 8 (DAC 8), and related regulations

Businesses will need to implement crypto-asset reporting

Tax authorities do not currently have the information they need to efficiently monitor crypto-asset revenues, which are easily traded across borders. This lack of information limits authorities’ ability to ensure taxes are paid on crypto transactions. To address this gap, the OECD has published the Crypto-Asset Reporting Framework (CARF) and some amendments to the OECD Common Reporting Standard (CRS). These rules will be implemented in the European Union through a new update to Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC), which is referred to as DAC8.

The introduction of CARF

CARF is a new set of rules introduced by the OECD that provides guidance on how to report cryptocurrency transactions, as well as how to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. This framework aims to achieve crypto-asset transparency through annual, automatic exchange of information related to crypto-asset transactions among participating jurisdictions whose tax residents engage in such activity.

Crypto-assets are defined as any digital representation of value that relies on a cryptographically secured distributed ledger (or a similar technology) to validate and secure transactions. This includes stable coins, derivatives issued in the form of a crypto-asset and certain non-fungible tokens (NFTs).

Common Reporting Standard amendments

Along with the introduction of CARF, some amendments to the CRS have been decided. These amendments bring within the CRS scope certain e-money products and Central Bank Digital Currencies. These updates will also ensure that indirect investments in crypto-assets through derivatives are covered by the CRS.

The DAC8

To allow its Member States to implement CARF rules, the Council of the European Union formally adopted on 17th October 2023 this directive amending EU rules on administrative cooperation in the area of taxation. Referred to as “DAC8”, this is a new update to the DAC, which aims to strengthen the existing legislative framework by enlarging the scope for registration and reporting obligations. This latest version of the directive applies to all service providers that facilitate transactions in crypto-assets for EU customers. DAC8 includes provisions on reporting and exchanging information related to crypto-assets for direct tax purposes. This directive is aligned with the OECD's CARF and incorporates the amendments to the CRS. The Commission also builds on the definitions used in Market in Crypto-assets Regulation (“MiCA”) for service providers and crypto-assets, which provides the conditions for accessing the EU crypto-asset market and anti-money laundering rules.

Member States should transpose DAC8 into their national law by 31 December 2025.

DAC8 rules would follow a three-step approach similar to that of DAC7:

Step 1: Conduct due diligence procedures that identify reportable users, i.e., those who use the service provider to trade and exchange their crypto-assets. The identification of such reportable users would be conducted through self-certification.

Step 2: Collect and report information to the relevant competent authority no later than 31 January of the following calendar year. Reporting CASP would have to inform each relevant individual that their personal information will be collected and reported, adhering to GDPR policies.

Step 3: The competent authority of the Member State that has received the information from the reporting crypto-asset service provider must communicate it to the competent authority via a mandatory automatic electronic exchange of information.
 

Next steps related to DAC8

With the formal adoption of the DAC8 on October 17th 2023, the new rules and reporting requirements for crypto-assets, e-money and digital currencies will apply from 1 January 2026.

Practically speaking, this would mean the first declarations would take effect on 31 January 2027, while the relevant data and appropriate due diligence will have to be carried out in 2026 for the first time to be able to report under DAC8 in time.

How can Deloitte help

Deloitte Luxembourg can mobilize a multidisciplinary team of Tax & Consulting resources to help you:

1. Identify and assess the implications and impact of this crypto-asset framework on your clients;
2. Review and adapt your client onboarding and due diligence processes to comply with the upcoming DAC8 provisions; and
3. Provide a DAC8 reporting solution by leveraging our current FATCA & CRS reporting services.