The European Union (EU) announced on Thursday that it will require cryptocurrency companies to report their user holdings to the tax authorities of the region. As previously reported by CoinDesk, the proposed eighth directive for administrative cooperation contains a number of potential implications, including potentially requiring companies outside of the EU to register as tax entities.
In a statement, EU Tax Commissioner Paolo Gentiloni said: “Anonymity means that many users of crypto assets who make significant profits remain undetected by national tax authorities. This is unacceptable.”
The implementation of the directive is unclear since the cryptocurrency industry involves a variety of entities and actors located in different jurisdictions, some of whom claim to not have any base of operations. Moreover, there are worries about the user data trap that registration of user assets may create. Centralized exchanges (which already pose a risk) often contain personal information which criminals can use to connect users to their holdings.
Various data breaches have been reported for both inside and outside the cryptocurrency industry, demonstrating the need for caution. If companies are required to provide information about their users to EU tax authorities, including those outside of the EU, they will be collecting and transmitting huge amounts of data which could expose user holdings to the authorities, who must be trusted to keep it secure.
The European Crypto Initiative has expressed concern that this directive could go beyond the scope of the EU Market Regulation for Crypto Assets (MiCA), which is being seen as the first comprehensive attempt to address crypto assets and bring the regulations contained in Mifid, Market Abuse and Regulation of Prospects to the crypto industry.
The EU’s statement mentioned that the directive could potentially generate up to $2.5 billion (2.4 Billion euros) in revenue.