The European Parliament is now considering blockchain’s impact on taxes after passing controversial laws to restrict privacy in crypto transactions – and even flirting with banning bitcoin altogether.
During the session on April 25, lawmakers will discuss ways to tighten the tax laws and procedures for the digital age – and a draft report prepared by Portuguese member of the European Parliament Lídia Pereira suggests tax authorities could swap data about individuals’ crypto assets.
In current EU rules on administrative cooperation, information about bank accounts can be exchanged to prevent overseas holdings from being hidden from the taxman, and the OECD, which monitors international tax standards, is now consulting on whether this should also apply to crypto.
A lawmaker involved in the report told CoinDesk that Pereira’s proposal isn’t a problem when it comes to big corporations, but it could constitute a serious privacy invasion if it involves your regular crypto saver.
“When you have a well-established business which is on the border between the traditional financial system and crypto, then I think it’s fine to have a certain overview or supervision from the authorities, and to share this information”, said Mikuláš Peksa, a member of the Czech Pirate Party, which promotes digitalization and online rights.
“Our tax system, as it stands, is very much focused on chasing the smaller players in order to force them to pay each and every euro,” he said, while “the bigger players are generally using more or less legal ways to optimize their taxes.”
In addition to the risks of tax evasion, lawmakers also seem interested in the possibility of tax blockchains. Public ledgers could be a new way to automate tax collection, making sure people pay what they owe without having to fill in a lot of paperwork.
Instead of submitting returns to the tax authorities, “you can tell them the address of your wallet, and they can just do everything else,” Peksa said, adding that, in terms of proving which transactions you’d made, blockchain networks verified by multiple users are “much more accountable than whatever any bank could give you.”
He admits that modernizing conservative tax administrations comes with its own challenges. Legislators may have been inspired by a presentation they heard in November from tax lawyers, who said Web 3 technology could help reduce fraud.
Pereira’s draft urges the European Commission to “evaluate how blockchain technologies can be used to prevent tax fraud and avoidance,” and even develop a support infrastructure for it.
A 2020 OECD report shows that different countries, even within the EU, take different views as to how to tax income from mining, or when one crypto asset is exchanged for another.
That arrangement is unlikely to change with advice from the parliament. While many EU member countries want to combat tax-dodging, they also guard their freedom to set their own tax policies jealously. According to EU procedures, any country can veto a tax proposal it doesn’t like, preventing it from becoming law.