EU’s Crypto Proposals, Reports and Fifth Sanctions Package

Last month, the EU Parliament and the EU Commission issued a number of reports and proposals on crypto assets – the EU Transfer of Funds Regulation, impact on taxation, consultation on digital Euro, plus imposing further sanctions and restrictive measures against Russian entities.

Here, Coinfirm’s Regulatory Affairs department summarises those key moves in the bloc.

EU Transfer of Funds Regulation (Travel Rule)

The European Parliament’s proposal of the Transfer of Funds Regulation (TFOFR) was finalised at the end of March 2022. The Parliament has introduced several amendments and extensions to the text initially proposed by the EU Commission and amended by the EU Council. The main changes proposed by the EU Parliament are: 

• Adding requirement to verify the beneficial owner of unhosted wallets in case a transaction occurs between a crypto asset services provider and an unhosted wallet 
• Removal of de minimis threshold for TFOFR requirements in case of crypto assets 
• Guidance towards specific high-risk factors that crypto asset service providers should consider in deciding to accept or reject a transfer 
• More guidance on counterparty due diligence (aka VASP Due Diligence) including the prohibition of transfers from non-compliant providers. Notably, the amended text proposes the creation of public register of non-compliant or high-risk providers of crypto-asset transfers and high risk wallet addresses

The text is now undergoing a trialogue process where the Parliament and the Council meet under the assistance of the Commission to reach a compromise on the proposed texts. 

EU Parliament – Draft Report on the Impact of Crypto and Blockchain on Taxation

On 4 April 2022, the European Parliament’s ECON committee published an initiative (INI) draft report on the impact of crypto and blockchain on taxation. The report calls parties responsible for tax administration (EU organizations and Member States) to take action towards embracing new technologies in tax compliance. Specifically, the report: 

• States that national tax administrations should be better equipped with the adequate resources to ensure tax compliance in the context of digital transformation, which means Member States investing more in human resources training, digital infrastructures and specialized personnel and equipment

• Points out the importance of adapting IT capacities of tax authorities and highlights the need to identify the best ways to use technology to strengthen tax adiministrations 

• Calls on the Commission to promote an assessment of the different national policies regarding the combat against tax fraud and evasion in the field of crypto-assets

• Invites the Commission to evaluate the creation of a new platform for training and best practice sharing between national tax authorities in the field of combat against tax fraud and evasion in the digital economy, particularly crypto-assets

The report also lists challenges relating to crypto assets taxation, namely: 

• Definition of tax base for crypto assets: there is currently no internationally-agreed standard definition of crypto-assets and types of assets to be included

• The taxation of crypto-assets in cross-border situations is linked to several dimensions of tax policy distributed between national and European competences

Bearing in mind these challenges, the report: 

• Calls on the Commission to consider the dimension of crypto-assets in the planned proposals for corporate taxation legal instruments, namely the Business in Europe: Framework for Income Taxation

• Calls on the Member States to consider the dimension of crypto-assets in their national tax reforms

The report concludes that fully integrated European single market requires a common approach on the taxation of crypto-assets and as such calls on relevant EU bodies to initiate work in this field. In particular, the conclusion states that it is necessary to amend the Directive on Administrative Cooperation2 (DAC8) to assess it and how it applies to crypto assets. 

EU Commission – Targeted Consultation on the Digital Euro

The European Commission has opened a targeted consultation on specific issues relating to the digital euro. The consultation complements the ECB public consultation run from October 2020 until January 2021. It comprises series of questions focusing on 7 areas. The consultation aims to gather information on expected impact on key industries and hence the target respondents are payment services providers and solution developers, merchants, regulators, Financial Intelligence Units and consumer associations. The focus areas of the consultation are: 

1. Users’ needs and expectations for a digital euro
2. The digital euro’s role for the EU’s retail payments and the digital economy
3. Making the digital euro available for retail use while continuing to safeguard the legal tender status of euro cash
4. The digital euro’s impact on the financial sector and the financial stability
5. Application of anti-money laundering and counter terrorist financing (AML-CFT) rules
6. The privacy and data protection aspects

For each of the above areas, respondents are presented with a few questions (including rating on the importance of presented issues or solutions as well as open questions). 

Following the consultation, a legislative proposal by the Commission is expected to be published in 2023. In ECB will continue working on the investigative phase of the digital euro project throughout this time. 

EU Agrees Fifth Package of Sanctions Against Russia

Further financial sanctions include: 

• Transaction ban and asset freeze on four Russian banks- VTB, Novikombank, Sovcombank, and Otkritie Bank
• Prohibition on providing high-value crypto-asset services to Russia
• Prohibition on providing advice on trusts to wealthy Russians

With regards to crypto assets, the prohibited activity is “to provide crypto-asset wallet, account or custody services to Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia, if the total value of crypto-assets of the natural or legal person, entity or body per wallet, account or custody provider exceeds EUR 10 000.”

Additionally, 217 individuals and 18 entities have been added to sanction lists. 

Apart from financial sanctions, the new package comprises of coal ban, targeted export bans, specific transport bans, excluding Russia from public contracts.