Among the most successful ways to combat tax evasion and safeguard the integrity of tax systems has long been thought to be the exchange of information. The multilateral Convention on Mutual Administrative Assistance, Bilateral tax treaties, as well as, more lately, the Global Forum on Transparency and Exchange of Information have all previously made it easier to exchange information.
With the adoption of the European Directive in Administrative Cooperation in the Field of Taxation (DAC) in 2011, the exchange of information became formalised at a European level. With the recasting of the Directive and the introduction of DAC2, which incorporates the guidelines of the OECD's Common Reporting Standard and establishes a system of automated sharing of financial account information, the Directive's scope of application was dramatically broadened in 2014. The EU established reporting requirements on intermediaries in order to reveal reportable cross-border agreements in 2018 under DAC62, which might possibly include components of aggressive tax planning and trigger certain hallmarks.
Various kinds of digital assets and extra revenue streams have emerged in recent years as a result of the growth of the digital economy and new e-commerce-related services. It became apparent that the structure for information exchange needed to be modified to take into account current trends and advances.
Digital platform-driven growth in the sharing and gig economies has given rise to new economic actors who conduct their operations outside of the norm. Digital platform operators with connections in the EU are required to recognize specific sellers and report information about sellers, as well as related actions under the DAC7 Directive. The rental of immovable property, both commercial as well as residential property, the sale of goods and personal services, and the rental of any means of transportation, when performed for payment, are among the activities involved. Platforms are required to provide information about "reportable sellers," for example, individuals, businesses, or other legal arrangements, who engage in a relevant activity and that either live in the EU or rent out real estate in a EU Member State. The first reporting is anticipated by January 31, 2024, while the Directive's provisions should go into effect on January 1, 2023.
The EU has established regulations to create a Central Electronic System of Payments (CESOP), demanding payment service providers (PSPs - as defined under the Payment Services Directive 2) to comply with the guidelines in order to combat another type of tax evasion in this case VAT fraud. CESOP may be viewed as another DAC-like proposal, despite being an amendment to the VAT Directive. PSPs must submit payment data, on a quarterly basis, to their local tax authorities. These authorities will exchange this information with other EU nations in a central database known as CESOP (Central Electronic System of Payment information). On January 1, 2024, CESOP will go into effect
Despite the latest "crypto crash," there have been concerns about taxpayers not comprehending the tax duties related to investing in crypto assets and e-money, given the significant increase in investment in these areas in recent years. Evidently, this increased the likelihood that taxes would go unpaid in intentional or even unintentional ways. The DAC8 Directive, which is likely to implement new laws requiring all financial institutions, including e-money institutions, crypto exchanges, and other platforms, to disclose transactions on a yearly basis, is the EU's response and another connection in the DAC chain. The proposed regulations have an undeniably massive scope, particularly in terms of the kinds of digital assets that are included in the proposed framework. The OECD released their final report for a new Crypto Assets Reporting Framework at the exact time, in October 2022. This report reveals new and modified reporting standards encompassing the reporting of e-money and crypto-assets. Additionally, more extensive changes to the current Common Reporting Standard (CRS) are also suggested. From 2024 forward, OECD is anticipated to press for adoption on a worldwide scale.
Although the details of each of the foregoing frameworks will vary, a similar method of operation is expected. The automatic sharing of information amongst tax authorities will enable them to identify under-declared as well as non-declared income. From a procedural perspective, impacted organizations will be required to modify their current procedures or perhaps even implement new ones for the purpose of collecting, validating documentation, identifying, classifying, and monitoring their client base, as well as reporting particular information to the appropriate tax authorities by means of a data control process.