DAC8 and Cross-Border Tax Audits

DAC8 data will enhance the ability of tax authorities to conduct cross-border tax audits involving crypto-assets. This article examines how these audits work and what CASPs should expect.

Joint Audits Under DAC

The DAC framework (strengthened by DAC7's provisions) allows tax authorities from two or more Member States to conduct joint audits of taxpayers with cross-border activities. DAC8 data will provide a new basis for identifying audit targets and supporting audit inquiries.

How CASPs May Be Involved

While tax audits primarily target taxpayers (individuals and entities), CASPs may be involved as sources of additional information. Tax authorities may request CASPs to provide detailed transaction records for specific users, clarify classification decisions for specific transactions, explain their due diligence procedures and validation processes, and produce documentation supporting their reported data.

CASPs should be prepared to respond to such requests promptly and completely, with well-organized records that can be readily produced.

Impact of DAC8 Data on Audit Selection

Tax authorities use risk-based approaches to select audit targets. DAC8 data will feed into these risk models by identifying taxpayers with significant crypto activity who have not reported corresponding income, flagging discrepancies between DAC8 data and information from other sources, and revealing patterns of activity (such as frequent transfers to high-risk jurisdictions) that warrant investigation.

Conclusion

DAC8 data will become a powerful tool for cross-border tax audits. CASPs should maintain audit-ready records and ensure that their compliance documentation can withstand detailed examination by tax authorities from multiple jurisdictions.