Blockchain for Europe

DAC8: Industry Position Paper Page 1 / 7 DAC8: Industry Position Paper The following are our preliminary comments regarding the European Commission’s proposal for the 8th amendment to the Directive of Administrative Cooperation (‘DAC8’).1 We would be delighted to further elaborate on the various aspects of the proposal, as appropriate. 1) Introductory Remarks Overall, we acknowledge that in the field of crypto-assets there is a need for increased tax information transparency. We thus welcome the Commission's decision to extend the scope of the existing DAC regime to also cover the exchange of information on crypto-assets. Regulating the legislative field of crypto tax reporting by means of a Directive will, at least to some extent, reduce fragmentation across EU Member States as well as curb the increase in costs and the compliance burden for Crypto Asset Service Providers (‘CASPs’).

States as well as curb the increase in costs and the compliance burden for Crypto Asset Service Providers (‘CASPs’). Also, we strongly support the Commission’s efforts to ensure consistency between OECD and EU rules in order to increase the effectiveness of information exchange while reducing administrative burdens. A Directive in line with the OECD's Crypto Asset Reporting Framework (‘CARF’) is another milestone towards the desired regulation of the industry, promoting its sustained growth and adoption. Ultimately, we acknowledge the principle that crypto tax reporting should no longer be the sole responsibility of individuals, but should also be dealt with, or at least supplemented by, CASPs. Yet this industry is still in its infancy and the dynamics of the market lead to a rapidly changing landscape, both technically and legally.

…still in its infancy and the dynamics of the market lead to a rapidly changing landscape, both technically and legally. This presents a rather challenging situation for CASPs, who should therefore not be burdened with excessive or practically unimplementable reporting requirements. Altogether, we stress that CASPs, or more generally crypto service providers and operators, should not be treated more adversely or be subject to a greater compliance burden than similarly situated financial service providers. 2) Main Comments Overall, we want to highlight the following points of concern (not ranked in any specific order): a. while CASPs will be required to assess and classify reportable crypto-assets on a case-by- case kind basis, the proposal does not provide clear guidance in this regard; b.

…reportable crypto-assets on a case-by- case kind basis, the proposal does not provide clear guidance in this regard; b. the inclusion of staking and lending as ‘Crypto-Asset Services’ and the related impact on the scope of the term 'Crypto-Asset Operator' (‘CAO’) is not only alien to CARF, but also goes beyond what has been agreed under the EU-Regulation on Markets in Crypto-Assets 1 For an overview, see already: Bernt (2022), DAC8: Overview & Commentary, Blockpit Working Paper Series: 001, Linz, Austria, available at: https://blockpit.io/wp-content/uploads/2022/12/DAC8_Commentary.pdf. Ref. Ares(2023)2206155 - 27/03/2023 DAC8: Industry Position Paper Page 2 / 7 (‘MiCA’), leading to an incoherent expansion of the scope of the regulatory perimeter and thus potentially disadvantaging the EU single market (‘gold plating’); c.

…of the scope of the regulatory perimeter and thus potentially disadvantaging the EU single market (‘gold plating’); c. the freezing of accounts deemed to be non-compliant is not a requirement in CARF and goes beyond the requirements that apply to traditional financial institutions, thus thwarting the principle of equal treatment (i.e. ‘horizontal equity’); d. the practical implementation needs to respect data privacy and be guided by industry best practices in terms of sufficient data security and data protection; e. while the system of a standardized TIN would greatly facilitate the implementation of the DAC8, its timely introduction seems very ambitious from today's perspective; f. recognizing the significant implementation challenges facing CASPs, we would support the introduction of an interim penalty abatement regime; g.

…implementation challenges facing CASPs, we would support the introduction of an interim penalty abatement regime; g. despite the rather short implementation period, the proposal does not contain any concrete standards on the exact implementation of the reporting standards (in particular, there is a lack of provisions that ensure a minimum degree of the transmitted data quality). a. Classification of Reportable Crypto-Assets In the proposal a ‘Reportable Crypto-Asset’ is defined as any crypto-asset other than a Central Bank Digital Currency (‘CBDC’), e-money, e-money token, or any crypto-asset which a Reportable Crypto Asset Service Provider (‘RCASP’) “adequately determines” cannot be used for payment or investment purposes.

Crypto Asset Service Provider (‘RCASP’) “adequately determines” cannot be used for payment or investment purposes. In this regard, Recital 14 of the proposal calls on RCASPs to consider on a case-by-case basis whether crypto-assets can be used for payment or investment purposes, taking into account the exemptions provided for under MiCA, in particular in relation to limited networks and certain utility tokens. According to the Commission’s Impact Assessment Report, we can only assume that the above exemptions apply to, on the one hand, ‘utility tokens’ which are solely accepted by the issuer of such tokens and are issued with non-financial purposes to digitally provide access to applications, services or resources available on blockchains (so-called ‘closed-loop systems’, e.g.

…provide access to applications, services or resources available on blockchains (so-called ‘closed-loop systems’, e.g. certain vouchers, airline miles, etc.), and, on the other hand, so-called ‘non-marketable crypto-assets’ which are not traded in a publicly available market or do not require intervention by a CASP (e.g. trading card games). This, of course, is rather vague and makes it difficult, if not impossible, to ‘adequately determine’ which crypto-assets fall under the scope of DAC8. In order to avoid a significant lack of consistency in application of the rules, we urge the need for more clarity. However, while calling for more clarity on the scope of DAC8, we still want to highlight the need for alignment with the consensus reached under MiCA in line with MiFID II for security tokens.

…to highlight the need for alignment with the consensus reached under MiCA in line with MiFID II for security tokens. This not only makes sense for reasons of simplicity and coherence of the reporting standards, but is also necessary to create a uniform legal framework within the EU. Hence, crypto-assets that do not fall within the scope of MiCA should also not be covered by DAC8. In this regard, we propose DAC8: Industry Position Paper Page 3 / 7 to include in DAC8, and respectively its Annexes, that when assessing whether crypto assets should be considered reportable RCASPs should take into account whether or not such assets fall under MiCA. In most cases, this could prevent duplicative review obligations, as most RCASPs are already required to assess reportability under MiCA anyway.

…prevent duplicative review obligations, as most RCASPs are already required to assess reportability under MiCA anyway. Furthermore, this could streamline the approach towards non-fungible tokens (‘NFTs’), privacy coins and the like, and make separate explanations in DAC8 redundant. Apart from the lack of clarity of the current proposal, from a practical point of view, we argue that the rule that RCASPs have to consider on a case-by-case basis whether crypto-assets can be used for payment or investment purposes might turn out to be rather inappropriate, even with the help of the above recommendations. In fact, we believe that this might lead RCASPs to either treat what are actually the same crypto-assets differently or to classify each and every asset as reportable in order to avoid potential liability and inconsistency with other RCASPs.

…classify each and every asset as reportable in order to avoid potential liability and inconsistency with other RCASPs. Not only would the latter unnecessarily inflate the information received by national competent authorities (‘NCAs’), but it could also result in a non-coherent collection of information that could compromise not only the efficiency but also the effectiveness of the whole reporting regime. Therefore, we wish for clearer guidelines that allow for a coherent and uniform interpretation and do not make this decision solely dependent on the RCASP and wherever appropriate, minimise the circumstances where case-by- case evaluation would need to be applied. Therefore, we advocate for clear information on the classification of reportable crypto-assets, namely those used for payment or investment purposes.

…information on the classification of reportable crypto-assets, namely those used for payment or investment purposes. Further, we recommend that DAC8 adopts a definition of crypto assets which is consistent with the definition used in MiCA and MiFID II. b. Significant Inconsistencies with MiCA and CARF In general, we acknowledge the significant fiscal importance of staking and lending and therefore support that these transaction types should also be recorded and reported accordingly. However, the inclusion of both in DAC8 as so-called ‘Crypto-Asset Services’ is not only alien to CARF, but also goes beyond what has been agreed under MiCA. It is well known that there were several discussions on whether these two services should be included in both instruments, but the legislators clearly decided against this for various reasons.

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