Within the EU, crypto-assets are a particularly uncertain object of taxation for policy-makers and asset-holders with diverse approaches across member-states. As early as 2015, the Court of Justice of the EU (“CJEU”) ruled that “(t)he ‘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” (CJEU, Judgment of the Court (Fifth Chamber) of 22 October 2015, C-264/14, Skatteverket v David Hedqvist, recital 42).
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”) (Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing), rendering them subject to KYC rules.
Crypto-assets constitute a type of private asset that depend primarily on cryptography and distributed ledger technology as part of their perceived or inherent value (EBA (2019). Report with Advice on Crypto-Assets). 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 MiFID2 or qualify as “electronic money” within the EMD or as “funds” under the PSD2.
On 24 September 2020, the European Commission adopted the Digital Finance Package, which constitutes a major breakthrough at 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”) (Commission (2020). Proposal for a Regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937, COM(2020) 593 final, 2020/0265(COD)), which aspires to establish sweeping common rules for the regulation of blockchain FinTech applications across the European Union 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 EU level; and
- to establish specific rules for 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”: means a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology;
- “utility token”: means a type of crypto-asset which is 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”: means 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;
- “electronic money token” or “e-money token”: means 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 issuance, operation, organisation and governance of crypto-asset service providers, as well as establishes 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 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;
- lays down the powers of national competent authorities, the EBA and 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 infrastructures, permissions to make use of them and the supervision and cooperation of competent authorities and ESMA. It applies to all DLT market participants (either investment firms, market operators or central securities depositories, CSDs).
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 still remain to be adopted in their final form, the specificities of the crypto-assets’ taxation regime in each jurisdiction will need to be determined after MiCA’s enactment.