On 8 December 2022, the EU Commission adopted a new proposal for a Directive, the so-called “DAC8” (hereafter referred to as the “DAC8 Proposal” or “the Proposal”), amending the Directive 2011/16/EU on Administrative Cooperation (the “DAC”).
The Proposal puts forward changes to existing provisions on exchanges of information and administrative cooperation and extends the DAC’s scope to mainly the automatic exchange of information with respect to information reported by reporting crypto-asset service providers. The rules on due diligence procedures, reporting requirements and other rules applicable to reporting crypto-asset service providers are based on the OECD crypto-asset reporting framework (“CARF”).
Extension of the scope of automatic exchange of information
The DAC8 Proposal extends the reporting obligations under DAC as follows:
Information to be reported by reporting crypto-asset service providers
The DAC8 Proposal lays down the scope and conditions for the mandatory automatic exchange of information that will be reported by reporting crypto-asset service providers to the competent authorities. “Crypto-assets” refer to any digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology.
Step 1: Due diligence procedure
The new rules proposed would include an obligation on the reporting crypto-asset service provider to collect and verify the information in line with due diligence procedures laid down by the Proposal. The aim of the procedures is to allow providers to identify, through self-certification, whether their clients are reportable or not. Specific due diligence procedures are proposed, depending on whether the crypto-asset user is an individual or a legal entity. The processes above should be completed for new customers, but also for pre-existing clients within twelve months after DAC8 enters into force.
Step 2: Reporting
The reporting crypto-asset service providers would then have to report to the relevant competent authority information on the crypto-asset users, i.e. those who use the service provider to trade and exchange their crypto-assets. The rules would impact crypto-asset service providers41 and crypto-asset operators52facilitating transactions for EU residents, irrespective of the size and location of the providers, i.e. whether based in the EU or in a third country. A reportable user is defined as an EU-resident individual or an entity that is a customer of a reporting crypto-asset service provider for the purposes of reportable transactions.
The DAC8 Proposal also provides for specific carve-outs for users that are:
- companies listed on regulated stock exchanges and their related parties,
- governmental entities,
- international organisations,
- central banks and certain other financial institutions.
- Transactions entered into by entities falling within the scope of these carve-outs would not be reportable.
Step 3: Exchange of the information reported
- As a final step, the competent authority of the Member State that has received the information from the reporting crypto-asset service provider would have to communicate the reported information to the competent authority of the relevant Member State where the reportable crypto-asset user is resident.
- The automatic exchange of information would take place electronically via the EU common communication network (“CCN”) by using an XML schema developed by the Commission. The information would be communicated to the central directory developed by the Commission and already used for the automatic exchange of information on advance cross-border tax rulings (so called “DAC3”) and cross-border arrangements (so-called “DAC6”).
New categories of income and capital to be reported
The DAC8 Proposal widens the categories of income subject to mandatory automatic exchange of information between the Member States to include non-custodial dividend income. It also obliges Member States to exchange all information that is available on all categories of income and capital with other Member States, including:
- income from employment,
- director’s fees,
- life insurance products not covered by other EU legal instruments on exchange of information and other similar measures,
- pensions,
- ownership of and income from immovable property and royalties
with respect to taxable periods starting on or after January 2026.
Advance cross-border rulings for high-net-worth individuals
Last but not least, the DAC8 Proposal widens the scope of automatic exchange of advance cross-border rulings and advance pricing agreements for persons other than natural persons to include high-net-worth individuals who hold a minimum of EUR 1 000 000 in financial or investable wealth or assets under management, excluding that individual’s main private residence.
Member States would have to exchange information on advance cross-border rulings for high-net-worth individuals issued, amended or renewed between 1 January 2020 and 31 December 2025 with other Member States. Such communication would only have to be performed under the condition that the rulings were still valid on 1 January 2026 (date as from which the DAC8 rules would become applicable, based on the current Proposal).
Other amendments
Finally, the DAC8 Proposal provides for the following additional changes to the DAC:
- Reporting of the tax identification numbers of taxpayers.
- Use of information exchanges for other purposes: The DAC8 Proposal amends the DAC to ensure that information reported and exchanged under the DAC can be used for purposes other than direct taxation, provided that the sending Member State has stated the purpose allowed for the use of such information in a list. In addition, the Proposal clarifies that information communicated between Member States may also be used for the assessment, administration and enforcement of customs duties, and anti-money laundering and countering the financing of terrorism.
- Review of the provisions of Directive 2014/107/ EU: Since Council Directive 2014/107/EU (“DAC2”) implemented the OECD Common Reporting Standard (“CRS”) within the EU, the DAC8 Proposal introduces some changes to reflect the latest developments at global level regarding CRS to cover electronic money products and central bank digital currencies.
Next steps and implications
- Should the DAC8 Proposal remain unchanged on its timing aspects, Luxembourg would have to implement most of the amendments into its internal law by 31 December 2025 at the latest so that they would become applicable as from 1 January 2026. Some exceptions apply regarding the implementation timing and dates of application of the provisions on the identification service and on the verification on the tax identification number.
- The European Commission opened a feedback period from 8 December 2022 to 2 February 2023, which was extended to 30 March 2023 for citizens and stakeholders to express their views regarding the DAC8 Proposal. Thereafter, the DAC8 Proposal will be negotiated in the EU Council of the European Union, and the European Parliament will be consulted to provide a non-binding opinion.
The EU Commission adopted a proposal for DAC8 that would provide for several amendments to the Directive on Administrative Cooperation (DAC). The most important amendment would concern far-reaching reporting obligations regarding crypto-assets. The other important change of DAC concerns the widening of the scope of automatic exchange of advance cross-border rulings and advance pricing agreements for high-net-worth individuals.
OLIVER R. HOOR
Partner, Head of Transfer Pricing & the German Desk
oliver.hoor@atoz.lu
SAMANTHA SCHMITZ
Of Counsel
samantha.schmitz@atoz.lu
4 Crypto-asset service providers are defined as legal entities or undertakings that provide crypto-asset services to third parties on a professional basis and which are authorised to provide these services under the Regulation on Markets in Crypto-Assets (“MiCA”).
5 Crypto-asset operators are any individuals or legal entities providing crypto-asset services to third parties on a professional basis, but falling outside the scope of the MiCA.
