Brussels eyes EU crypto tax – POLITICO

by Arthur · November 11, 2022

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The tax man is coming for crypto.

The European Commission will soon start talks with the bloc’s treasuries about whether a single EU tax regime is justified for the cryptocurrency market.

Three EU officials told POLITICO that discussions are set to start in the new year to share best practices, as governments pursue different taxes and bets for the growing market.

The planned EU tax talks signal the decision-makers’ intention to bring the volatile and opaque market into swing. This year alone, a bear market has wiped over $2 trillion off the value of crypto assets.

Politicians fear that the lack of safeguards could leave large banks and money managers vulnerable to massive sudden losses in the market. For example, FTX has long been one of the market’s largest crypto exchanges, valued at $32 billion in January. It is now in searching for a lifeline after 48 hours of turbulence and news that the giant crypto exchange was insolvent and unable to meet customer withdrawals, leading to a cash crunch.

Europe has led the way in regulating crypto, which offers users a high degree of anonymity. Brussels lawmakers agreed at the end of June on a single rulebook for the market, called MiCA, which will come into force in 2024.

A single tax regime would make it even easier for crypto traders and companies to operate across the EU’s 27 separate jurisdictions.

“Difficulties in classifying, valuing and managing crypto-assets pose challenges for tax authorities seeking to tax them fairly and efficiently,” a Commission spokesman said when asked about a possible EU crypto tax. “The EU is working hand-in-hand with member states to facilitate and promote the sharing of best practices regarding the taxation of crypto-assets.”

An EU crypto tax is not imminent, but work is underway, building on discussions that finance officials had last spring behind closed doors in Toulouse.

The bloc must first introduce new measures that will require crypto companies to collect and share with tax authorities all details of individuals or firms that own digital assets across the bloc.

The commission will propose these rules in December or January and probably start enforcing them in 2026. It will give the taxman a clear overview of who owns what in the market, which provides a high degree of anonymity. Armed with that information, the EU could introduce a crypto tax in 2027, two of the officials said.

Tax error

Authorities use a number of different taxes that target wealth, income and capital gains with varied rates varying from zero to 33 per cent.

Portugal, for example, will use a national crypto tax regime starting in the new year that provides a 21 percent interest rate on companies. Individuals deriving an income of up to €200,000 from the crypto market will only face an effective tax rate of 8 percent. That said, speculators who withdraw any crypto gains under one year will face a 28 percent tax.

Such a landscape poses a massive logistical headache for crypto companies and exchanges that want to make full use of the EU’s regulations when it comes into force in 2024.

A spokesman for Crypto.com, one of several American online exchanges expanding its services across Europe, called for “a user-friendly tax regime, which is in line with the actual realization of the revenue principles and takes into account the growth of the crypto-assets sector and the potential economic the benefits it would provide.”