Within the EU, crypto-assets are a particularly uncertain object of taxation both for policymakers and asset-holders, with diverse approaches across member states.
As early as 2015, the Court of Justice of the European Union (CJEU) ruled that “the ‘bitcoin’ virtual currency, being a contractual means of payment, cannot be regarded as a current account or a deposit account, a payment or a transfer. Moreover, unlike a debt, cheques and other negotiable instruments referred to in Article 135(1)(d) of the VAT Directive, the ‘bitcoin’ virtual currency is a direct means of payment between the operators that accept it”.
In response to risks arising from money laundering and the financing of terrorism via crypto-assets, the EU included crypto-asset exchanges and wallet providers within the scope of its 5th Anti-Money Laundering Directive (5AMLD), rendering them subject to know-your-customer (KYC) rules.
Crypto-assets constitute a type of private asset that depend, primarily, on cryptography and distributed ledger technology (DLT), as part of their perceived or inherent value. They constitute one of the major applications of blockchain technology in finance. Some crypto-assets may qualify as ‘financial instruments’ within the scope of the Markets in Financial Instruments Directive II (MiFID II), or qualify as ‘electronic money’, within the E-money Directive (EMD), or as ‘funds’, under the Payment Services Directive 2 (PSD 2).
On September 24 2020, the European Commission adopted the ‘digital finance package’, which constitutes a major breakthrough at a global level, in the regulation of financial technology (fintech).
The package includes, among others, a proposal for a regulation on ‘markets in crypto-assets’ (MiCA), which aspires to establish sweeping common rules for the regulation of blockchain fintech applications across the EU, and render EU financial services rules fit for the digital age.
The political aim underscoring MiCA is to position the EU at the forefront of blockchain innovation and uptake. The objectives of MiCA are the following:
To provide legal certainty for crypto-assets not covered by existing EU financial services legislation;
To establish uniform rules for crypto-asset service providers and issuers at an EU level; and
To establish specific rules for the so-called ‘stablecoins’, including when these are e-money.
The scope of MiCA is limited to crypto-assets that do not qualify as financial instruments, deposits or structured deposits under EU financial services legislation.
The proposed regulation focuses on three categories of crypto-assets: (i) asset-referenced tokens; (ii) e-money tokens; and (iii) other crypto-assets. In addition, it regulates asset-referenced token issuers, e-money token issuers, and crypto-asset service providers.
MiCA provides for the following definitions of the various types of crypto-assets falling under its scope:
Crypto-asset: a digital representation of value or rights which may be transferred and stored electronically, using DLT or similar technologies;
Utility token: a type of crypto-asset intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token;
Asset-referenced token: a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets; and
Electronic money token or e-money token: a type of crypto-asset, the main purpose of which is to be used as a means of exchange.
Furthermore, by virtue of its provisions, MiCA:
Establishes uniform requirements for transparency and disclosure in relation to the issuance, operation, organisation, and governance of crypto-asset service providers, also establishing consumer protection rules and measures to prevent market abuse;
Regulates the offerings and marketing to the public of crypto-assets, other than asset-referenced tokens and e-money tokens;
Describes the procedure for the authorisation of asset-referenced token issuers, e-money token issuers and crypto-asset service providers and, also, sets out their requirements, operating conditions, and obligations; and
Lays down the powers of national competent authorities, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), along with administrative sanctions and measures, penalties, the right of appeal, and the reporting of breaches.
Alongside MiCA, the Commission has also proposed a regulation establishing operating conditions for DLT market infrastructure, permissions to make use of it and the supervision and cooperation of the competent authorities and ESMA. It applies to all DLT market participants (either investment firms, market operators or central securities depositories, CSDs, etc.).
Especially in relation to tax law, MiCA is complemented by the proposal of the Commission for the eighth update of the Directive on Administrative Cooperation (DAC8), which aims to expand the exchange of information between EU tax authorities, regarding revenues stemming from investments in, or payments with crypto-assets and e-money.
With its adoption, the definition of the legal status of crypto-assets in the provisions of MiCA will provide the legal certainty necessary to determine the taxation rules applicable to crypto-assets across member states.
Since its provisions have not yet been adopted in their final form, the details of the crypto-assets’ taxation regime in each jurisdiction will need to be determined after MiCA’s enactment.
Antonios Broumas
Manager, EY Greece
