Reporting Information on Crypto Transactions to the Tax Authorities: There is no Date yet, but You Need to be Prepared for it

Both at European and global levels, new rules are being developed that will require crypto asset service providers to submit tax authorities’ information on their clients’ transactions. Experts from the Lewben tax group focus on the main changes that are underway. 

Information on crypto asset transactions

The European Commission has prepared a draft of new rules requiring crypto asset service providers to report to tax authorities on crypto asset transactions (DAC8) carried out by clients resident in the European Union.

The aim is to ensure the taxation of crypto assets both on a European and global scale. The Organisation for Economic Co-operation and Development (OECD) recently unveiled its crypto asset reporting system (CARF) and amendments to the OECD Common Reporting Standard (CRS). While the CARF imposes fewer requirements than DAC8, these rules also aim to ensure that respective information on crypto assets is collected and transmitted for tax purposes. 

The DAC8 is due to be submitted to the Council of Europe and the new tax transparency requirements are expected to enter into force in 2026. An international CARF implementation agreement is underway. There is no exact effective date yet: CARF will become operational once the states have transposed its provisions into their national legislation. 

Plans to expand the scope of information exchange

‘The new requirements aim to allow the tax authority to access information about crypto asset transactions made by individuals through crypto asset service providers, such as data on the amounts paid by the clients, the units of crypto assets purchased or the number of related transactions,’ says Eglė Burbaitė, Senior Tax Consultant at Lewben.

Burbaitė points out several of the most important things that tax authorities should be informed about in the future.

Client information

Tax authorities should be provided with the name, address, country of tax residence, tax payer’s number, and other data of the clients using crypto asset services. There is no requirement to provide information on proxies, agents, guardians, investment advisers, and other intermediaries acting on behalf of or for the benefit of another person.

Crypto assets

Information on all crypto assets is to be provided, except that which cannot be used for general payment or investment purposes. 

Reporting obligations would include payment tokens (Bitcoin, Ethereum), stablecoins (USDC, Tether, BUSD), equity tokens representing ownership rights in legal entities, debt tokens related to debt instruments, and, in some cases, non-fungible tokens (NFT).

On the other hand, the utility tokens that are spent in close-loop systems in order to provide digital access to applications, services, or resources available only on the network of the issuer of those tokens on the blockchain, should not fall within the scope of the exchange of information requirement, as they cannot be used for general payment or investment purposes.

Crypto asset transactions

The tax authorities should be informed about the exchange of crypto assets for fiat currencies (e.g. EUR, USD), including changes in the form of crypto assets and other related operations, such as:

  • crypto asset-fiat currency (e.g. EUR, USD) exchange;
  • one-time or multiple changes in the form of crypto assets;
  • payment for goods or services in a crypto asset in excess of EUR 50,000 or USD;
  • transfer of crypto assets, i.e. where crypto assets are transferred from one crypto wallet to another crypto wallet held by the same owner, regardless of the fact that such a transfer should not invoke any tax consequences.

Reporting requirements would not apply exclusively to advisory activities, the issue of crypto assets, or portfolio management.

Additional requirements

Moreover, Burbaitė points out a number of additional requirements that should be implemented by crypto asset service providers (i.e. cryptocurrency exchanges, cryptocurrency brokers, cryptocurrency ATMs, etc.) if their clients are tax residents in the EU.

Obligation of registration

Crypto asset service providers working with clients resident in the EU will in all cases be required to be registered in one of the EU Member States. This obligation will apply even to those crypto asset service providers that are based in third countries. The aim is to ensure that crypto asset service providers cannot evade the reporting obligation by relocating outside the EU. 

Client due diligence obligation

With the aim to establish the identity of a client and their tax residence (including the tax residence of the heads of legal entities), crypto-asset service providers should require that their clients fill in self-certification questionnaires before the date of entry into force of the DAC8 rules. This information should be obtained in case of new clients and those with whom the crypto asset service provider had a commercial relationship 12 months prior to the entry into force of the DAC8 rules. 

The clients who fail to provide the requested data will not be able to use the services of crypto asset service providers. Should the client fail to provide the requested information even following two reminders (but not until after 60 days have passed), the crypto asset service provider will be obliged to prevent the client from carrying out any crypto-asset transactions.

Reporting obligation

Crypto asset service providers would be obliged to report on the above-mentioned crypto asset transactions that took place both within and outside the national borders. The reports should be submitted by January 31 of the year following the year to which the transactions relate.

Penalties for violations of requirements

Rokas Košuba, Tax Consultant at Lewben, explains that fines ranging from EUR 20,000 to EUR 500,000 are to be imposed on the crypto asset service providers who fail to report in due time or furnish incomplete or false information. Member States retain the right to impose higher fines and introduce additional sanctions for other violations. If a crypto asset service provider established in a third country provides services to clients in the EU but does not report, its registration may be canceled and its operations in the EU may be banned.

In order to continue providing crypto asset services to their clients without any interruptions, crypto asset service providers should prepare in advance to collect the missing information from their clients. It is likely that a significant amount of data on the country of tax residence has already been obtained as part of meeting the anti-money laundering and terrorist financing requirements. However, there is a need to check whether respective internal processes are functioning properly. Clients must be provided with questionnaires in order to determine their (and in case of legal entities also their managers’) country of tax residence. Moreover, it should be established whether there are ways and means of verifying the information in case of any doubts about the reliability of the data provided. 

More transparency alongside more complications

According to Košuba, the above-mentioned rules are only part of the legislative initiatives aimed at regulating crypto assets. As in the case of financial assets, consistent reporting of crypto asset transactions is necessary to ensure that taxpayers properly comply with their tax obligations. 

‘Crypto assets are often believed to be used in illegal activities and thus remain untaxed. The introduction of the obligation to inform the tax authorities about crypto asset-related operations will provide additional transparency in terms of crypto assets as a form of investment. On the other hand, the rules have certain loop holes and in some cases result in uncertainties. The problem of untraceable transactions that are performed using decentralized exchanges and self-managed cryptocurrencies remains unsolved. The transactions of this kind do not include any intermediaries acting as third parties capable of obliging to submit reports to respective authorities,’ says Burbaitė, Senior Tax Consultant at Lewben

It is also noteworthy that the DAC8, which would apply in the EU, leaves room for various interpretations of the definition of reportable crypto assets. As reporting should be limited to crypto assets that cannot be used for general payment or investment purposes, Member States may have different understandings and ways of adhering to this requirement, which could affect the efficiency of collecting information. 

There are plans to extend the reporting requirement to all crypto asset service providers, regardless of their size. As a result, small and medium crypto asset service providers will incur significant additional administrative costs in order to ensure compliance with the law, which will make their operations significantly troublesome, predicts Košuba, Tax Consultant at Lewben.

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Crypto in 2023: 10 Things to Be Excited About in the Next 12 months – DailyCoin

The final day of our ‘12 days of Cryptomas‘ feature series is upon us. There have been times this year when 12 days felt like 12 months, so it’s only appropriate that we take a look at the year ahead. Next year could potentially be make or break for crypto, but within that, there is a lot to be excited about.

This year has been full of uncertainty and disappointment for crypto enthusiasts–prices crashed, companies went bankrupt, and the momentum generated in 2021 was significantly blunted. 

But it’s not all doom and gloom–far from it! Here are ten things to be excited about in the crypto space in the next 12 months.

1. Fast and Mild Recession

Most analysts agree that there will be a global recession within the next 12 months; the only question is what form of economic downturn will hit.

While doom and gloom might seem to dominate the markets, the world may experience only a mild recession. At least, that’s what JP Morgan predicts for the United States.

A mild recession would mean a risk-on environment, which would be more conducive to encouraging investors and institutions alike to invest in riskier assets like crypto. If this were to pair with a truce in Ukraine, the industry could see a new bull run forming in the second half of 2023.

If the global economy suffers only a mild recession, it becomes more likely that the U.S. Federal Reserve will look to cut interest rates.

It’s no secret that the Fed wants to kill demand to win its war against inflation. And it seems that it’s already winning. The November CPI print saw inflation easing at an accelerating rate, 7.1% vs. the 7.3% expected—the fifth-straight monthly decline.

A lower rate environment would mean that crypto would receive more attention from investors and more access to funding for crypto startups.

It is possible that, even if inflation is tamed, interest rates are cut, and the looming recession is less severe than projected, crypto will not see sustained price growth within the next 12 months. The events of 2022 proved that what crypto needs the most right now is clear regulation if it wants to attract the big players.

Some leaders in the space, like Coinbase CEO Brian Armstrong, believe only centralized crypto entities like exchanges and stablecoin issuers need to get properly regulated. He said that decentralized finance and other blockchain-enabled spheres should be left to innovate.

Some work is already underway in this regard. The European Union’s MiCA legislation, a landmark crypto regulation framework in the region, is expected to go into effect sometime in 2023. The stipulations can set the standard for other nations worldwide to propose their own legislation, including answering the question of what constitutes a security and what does not.

4. Decentralized Social Media

If 2022 taught us anything, traditional centralized social media platforms are not entirely trustworthy. The Twitter File debacle that followed Elon Musk’s takeover of the company showed that even seemingly unimportant and ordinary accounts are monitored and policed by the FBI and other government agencies. Furthermore, unwarranted tweet deletions and account suspensions have become far too common.

On the other side, decentralized social media protocols and applications have been developed throughout 2022 and are set to shake things up next year. 

Protocols like Lens allow its users to own, transfer, and use their data across multiple applications. Lenster, Phaver, and Lensta are just some examples.

In the next 12 months, we’ll likely see a higher adoption rate among decentralized social media applications, regardless of whether centralized apps up their game.

The next Ethereum upgrade, Shanghai, just got a little bit spicier. While one particular highlight is that stakers can unstake and withdraw their ETH, an even more interesting Ethereum Improvement Proposal (EIP) is included in the upgrade.

EIP-4844, also known as proto-danksharding, is an improvement proposal aiming to include sharding elements in the Ethereum design. Sharding is a scaling method that breaks up a blockchain into several pieces, or shards, to increase its capacity and significantly reduce gas fees.

Many see proto-danksharding and zero-knowledge Ethereum Virtual Machine (zkEVM) as the killer duo that will scale Ethereum to billions of people. While the timeline for implementing Shanghai and EIP-4844 is still unclear, it makes the next 12 months as exciting as when the Ethereum community waited for the Merge.

6. Zero-Knowledge Ethereum Virtual Machine (zkEVM)

Zero-Knowledge Ethereum Virtual Machine (zkEVM) is the holy grail of Ethereum scaling technology. Its goal is to use zero-knowledge proofs–a proving method that enables one party to prove something to the other without disclosing any information about the matter – to verify all EVM processes, increasing privacy and reducing costs.

While zkEVMs are notoriously hard to build, mainly because the architecture of the EVM is rather unfriendly to zero-knowledge proofs, multiple teams have made enormous progress over the last few years.

For example, Matter Labs has deployed its zkEVM solution zkSync for developers on the Ethereum mainnet this year and is aiming for a full release next year. Polygon has also launched its zkEVM on testnet. StarkWare, Taiko, Consensys, and others are also building zkEVMs.

As crazy as it sounds, 2023 can be a year of zkEVMs.

Web3 gaming has been on everyone’s “it’s going to the moon” list for the last year, but it has yet to happen. 2023 has the potential to be the year that chances, as the blockchain gaming studios that received funding in 2020 and 2021 are finally putting the finishing touches on their games.

One such game is Illuvium. Illuvium is a fantasy play-to-earn NFT game that features a decentralized in-game economy built on ImmutableX with StarkNet’s Layer-2 scaling technology. It’s set to be the first AAA Web3 title.

Illuvium has been in the works for the last few years and is currently in private beta testing. More than 130 people have been working on making Illuvium the game that opens the floodgates to Web3 gaming.

Gaming studios like Animoca and Horizon will release their games in 2023. It’s going to be a gamer’s paradise.

Following the dramatic fallout of FTX, Guggenheim Partners CIO Scott Minerd said there would be more “shoes to drop.”

And he’s probably right. Digital Currency Group, Genesis Trading, Grayscale, Binance, Nexo,, and other crypto entities have experienced different financial instability or at least rumors of it. The question here, perhaps, is not “if” but “when.”

Why’s that a good thing? Crypto is not unlike traditional financial markets, where each credit cycle ends with final washouts of companies that were insolvent or built on a flimsy or otherwise illegitimate premise. To Minerd’s point, looking at crypto price and volume charts, it would be hard to believe that the washout has already happened.

The potential price dump resulting from such an event would present a unique opportunity to purchase deeply discounted assets in preparation for the next cycle. As Crypto Twitter likes to say: “a few more bankruptcies and then up only.”

Account abstraction is something Ethereum Co-Founder Vitalik Buterin has called “a dream” for developers. But what is it?

Account abstraction seeks to eliminate the existence of externally owned accounts (EOA) and contract accounts (CA) by unifying them. This would open the door to features such as multi-signature security, social recovery, and allow and block lists for addresses, to name a few. This would also eliminate the need for a recovery phrase.

While it’s unclear whether account abstraction will be added to the Ethereum Shanghai upgrade, a few protocols already work on account abstraction solutions. Projects like Loopring, zkSync, StarkWare, and Argent will undoubtedly take account abstraction to the next level in 2023.

It’s the moment that Ethereum proponents have been dreaming about since the inception of Ethereum itself. 

Can it happen in 2023? Bitcoin has been steadily losing its market dominance over the past few years. If nations worldwide recognized Ethereum as a commodity rather than a security, it might be the event that sparks an unprecedented Ethereum rally. Combining this with Layer-2 scaling technology, there is a reality in which Ethereum could dethrone Bitcoin in 2023.

On the other hand, if U.S. regulators officially deem Ethereum a security it is unclear whether the same could be said. Chairperson of the Securities and Exchange Commission Gary Gensler has repeatedly reiterated his position that ETH is a security, especially following the network’s transition to Proof-of-Stake. In this case, ETH may follow in the footsteps of Ripple (XRP).

Whichever way the pendulum swings, an answer will likely be determined within the next 12 months.

Crypto in 2023 has a lot of things to offer. From technological developments to increased adoption to a potential bull market, investors and everyday users will have plenty of opportunities to participate in the crypto industry.

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Sam Bankman-Fried Reveals FTX Stablecoin Plans – DailyCoin

Sam Bankman-Fried, the CEO of FTX, talked about the exchange’s plans to make its own stablecoin in an interview released on October 25. Speaking with Big Whale, SBF detailed how he plans to invest during a down market, how he will handle acquisitions, what projects he has in the works, and why FTX has decided to create its own stablecoin.

Recently, SBF disclosed plans to introduce the FTX v2 cryptocurrency exchange around Thanksgiving. Among the additions are a new order matcher, API paths with less latency, and other important features. SBF thinks it will help the exchange’s order throughput and cut its order latency in half.

To further strengthen retail users, SBF is looking to raise fresh acquisition funds amidst the crypto winter. FTX will stop considering purchases that could necessitate a rescue plan. Furthermore, SBF denied rumors that FTX is planning to purchase the commission-free trading software Robinhood. The company’s goal is to grow organically by attracting clients and, in particular, retail investors.

Stablecoins have potential to revolutionize money and unlock the possibilities of smart contracts and decentralized technology, as demonstrated by the tremendous developer interest in the field. Stablecoins as “programmable dollars” would give fintech developers much more flexibility and room for creativity. Consumer loans would not be possible if they were collateralized by volatile cryptocurrencies. Smart contracts become far more appealing to mainstream users and businesses when they can interact with digital, programmable dollars rather than volatile currencies such as Bitcoin (BTC).

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