The EU will mandate crypto firms to share user financial data with tax authorities starting in 2026 to curb tax evasion.
Starting from January 1, 2026, the European Union (EU) will require crypto firms to share financial information of their users with tax authorities. This initiative aims to curb tax evasion and introduce more transparency into transactions involving cryptocurrencies like Bitcoin, Ethereum, and others. Every EU finance minister approved these new directives, blending them into the region’s existing data-exchange framework between tax agencies. These upcoming changes don’t just target the average crypto user; they also aim to clamp down on the misuse of cryptocurrencies for money laundering and financing terrorism.
Read more: EU Parliament Backs DAC8 Crypto Tax Reporting Rule
What Do These Rules Mean for Crypto Providers?
Crypto service providers, including digital wallet providers and cryptocurrency exchanges, will face a mandate to supply user data to governmental bodies. This shift could pose a challenge for companies, particularly smaller firms with limited resources. According to Max Bernt, the chief legal officer at Blockpit and a board member at the International Association for Trusted Blockchain Applications, the new directive, known as DAC8, adds a layer of complication. While the crypto industry has made strides in adhering to rules about money laundering, sanctions, and user identification, this newly-approved tax reporting directive could pose additional challenges that many are not yet aware of.
Here’s where it gets a little tricky. The European Union already has a comprehensive set of crypto regulations called MiCA (Markets in Crypto-assets). However, the DAC8 directive complicates the regulatory landscape because it also covers staking—a form of participating in blockchain networks that MiCA overlooks. For the uninitiated, staking allows individuals to validate transactions and earn rewards, acting as a new revenue stream in the crypto world for coins like Ethereum and Solana. This inclusion could fog up the clarity provided by MiCA as staking hasn’t been clearly defined at an EU level.
Lawmakers in the European Parliament proposed that staking should be excluded from tax reporting requirements, but the European Council, the real power-player in tax matters, decided otherwise. Moreover, this lack of uniform interpretation could create bottlenecks for cross-border transactions and sow confusion among crypto firms operating in different EU states.
The Global Context and Future Steps
The EU’s announcement comes as part of a worldwide effort to put a framework in place for crypto tax reporting. At the G20 summit held in September, world leaders agreed to implement a set of guidelines devised by the Organisation for Economic Co-operation and Development (OECD) by the year 2027. Europe is well ahead of the curve, with its next action being the publishing of the crypto tax reporting directive in the EU’s Official Journal.
Implementation of DAC8 doesn’t just involve a ‘flip of a switch.’ Crypto firms face a choice in how they adapt to these new regulations. They can either develop internal capacities to meet the reporting requirements or outsource the task. There’s also the option of consulting external experts to build the capacity needed for future independent operation.
While the directive aims to bring about greater tax transparency in the crypto sector, Bernt warns that the lack of a clear-cut definition, especially concerning staking, could impose undue hardships on the industry, particularly for those on tighter budgets.