EU Directive 2023/2226 and exchange of tax information on individual rulings

A key aim of Directive 2023/2226 is to broaden automatic exchange's reach to cover cryptocurrency and e-money transaction data. With the surge of digital assets, traditional tax reporting methods struggle to keep abreast of evolving financial landscapes. By mandating cryptocurrency service providers to report transactions surpassing a certain threshold, the directive aims to plug existing gaps and ensure proper declaration and taxation of income from crypto assets.

Additionally, the directive effects substantial changes regarding advance tax rulings for high-net-worth individuals (HNWIs). These rulings have long faced scrutiny due to potential misuse. To boost transparency and facilitate cross-border cooperation, the directive extends automatic exchange's purview to encompass advance rulings concerning individuals with significant financial stakes.

The directive sets clear thresholds and criteria for determining which advance tax rulings undergo automatic exchange. Unlike the initial proposal based on asset values, DAC8's final version employs transaction values as the primary determinant. Advance rulings issued after 01 January 2026 will undergo automatic exchange if the transaction amount exceeds EUR 1.5 million or its equivalent in another currency. Moreover, rulings determining an individual's tax residency in the issuing member state are also covered.

While the directive promotes transparency and cooperation, certain exceptions and exclusions exist. Notably, withholding tax rulings concerning employee income, executive compensation, and non-resident pensions are exempt from automatic information exchange. This exemption acknowledges the unique nature of these rulings and ensures legitimate tax arrangements are not burdened by reporting requirements.

Directive 2023/2226 outlines a clear implementation timeline, with EU member states mandated to transpose its provisions into national law by 31 December 2025. Furthermore, the directive mandates penalties for breaches of national provisions in line with EU rules. By enforcing compliance and accountability, the directive aims to cultivate a culture of tax transparency and deter potential misconduct.

In conclusion, Directive 2023/2226 marks a significant milestone in enhancing tax transparency and cooperation within the European Union. By expanding automatic exchange to cover cryptocurrency transactions and advance tax rulings for HNWIs, the directive confronts emerging challenges in an increasingly globalised financial realm.

Prof Roberto M. Cagnazzo, Founder and Partner, is a chartered accountant and statutory auditor with considerable experience in domestic and international taxation acquired as Head of Tax in some of Italy’s leading multinational groups, and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin.