Last week’s European Parliament debate on a tax reporting resolution (PDF) brought into focus the depths of concern regarding tax evasion by cryptocurrency holders in the European Union. Even though there was hopeful discussion that blockchain technology could be a potential solution for standardized tax reporting on digital assets across the continent, the consensus view appeared to hold that crypto holders aren’t paying their fair share.
A press release (read it) offered this sub-headline, “Members of the European Parliament adopted a resolution on October 4 calling for a better use of blockchain to fight tax evasion and for member states to coordinate more on the taxing of crypto assets.”
In spite of a vote that included 566 votes “for,” 7 “against” and 47 abstentions, the resolution’s debate during a plenary session of Parliament included a number of Members who voiced starkly different points-of-view in spite of their support.
It certainly sounds great: a European tax system on the blockchain. But who/what exactly is going to implement this? It is not clear from the resolution.
What is clear is that Europe believes tax evasion is happening and the rule of law needs to get ahead of it.
This glass half-empty approach echoes a similar conundrum in the United States as momentum for legislation builds. Though lawmakers may talk a good game about igniting innovation with blockchain technology, it often seems to be about preserving the old way of doing things and enabling enforcement.
Is crypto and blockchain technology just too big of a change for current governments to absorb? The Metaverse will live somewhere and the country or countries that figure out a framework first will likely reap huge rewards.
Commissioner Lídia Pereira from Portugal (and part of the European People’s Party – Christian Democrats) who helped shepherd the tax reporting legislation offered her nuanced view that there were five reasons to implement the crypto tax legislation (via translation):
- Unified tax treatments – There needs to be a unified approach across the 27 member countries even though each country handles its own taxes. “You can tax but the tax must be fair, clear, transparent and proportionate.”
- Embrace digital – “We want clear support in human and material resources and a training program for further training of staff and good practices to be promoted in the member states.”
- Consistent definitions – “The definitions of crypto assets have to be drawn up jointly to ensure that similar situations are dealt with similarly.”
- Use blockchain technology – “We want blockchain technology to be leveraged (…) the characteristics of this technology allow us to react more quickly to combat fraud and tax evasion, and they can also make procedures more efficient in removing ‘red tape’ and sparing citizens a great deal of cost.”
- EU must lead – “We want the EU to take the lead on international dialogue on international [financial] instruments. It does make sense to act individually as countries because here in these laws we are in an area that needs global action. Competition needs to be healthy, but also fair.”
Next, Commissioner Adina-Ioana Valean of Romania (also part of the European People’s Party – Christian Democrats) reiterated many of Commissioner Pereira’s points and tilted toward enforcement in the end saying, “The use of new technologies in the fight against tax fraud and evasion in the digital economy, calls for capable tax administration staff. To these end appropriate trainings and best practice sharing between the European tax administration’s could only be beneficial….” In the United States, this hearkens back to Securities and Exchange Commission (SEC) Chair Gary Gensler appropriations request in May for more lawyers as part of the SEC’s enforcement division.
Carbon emissions, protecting small business
Salvatore De Meo of Italy who is a member of the European People’s Party Group noted environmental concerns with crypto saying, “We have to bear in mind the carbon emissions [they produce and] the energy they use. Blockchains and bitcoins use more energy in one year than Italy. We need to have a fair approach to this – a transparent framework. We have to ensure that we have guarantees when it comes to a level playing field between companies so as to save and protect in particular small businesses.”
These people need to obey the law
Aurore LaLucq, a French economist and member of the Place Publique party, followed Mr. DeMeo. She brought up the dissolution of centralized crypto finance platform Celsius: “This [crypto] market started out with a David against Goliath type of image. It was anti-systemic. Anti-big banks but it’s led people to lose everything. So when you hear from some people in the industry – and I do wish to apologize to honest people working in this world – this is an economic alternative. It could be a world that defends the weakest when in fact all it does is manipulate people with the people at the top manipulating the little people and then they mock the little people too. So there needs to be regulation. There needs to be taxation. But beyond that, these people need to stick to the rule of law.”
Following Ms. LaLucq, Martin Hlavacek from Czech, who is a member of the Renew Europe Group party, made a short statement concluding, “I want that crypto and blockchain (…) to have fair standards and fair taxation in the digital space.”
Hlavacek’s countryman and VP of the European Commission, Mikuláš Peksa, a Czech Pirate Party politician, was relatively hopeful in his comments: “Blockchain technologies open the path to effective tax management. If we want to prevent tax evasion, then we could put in place a fairer society. There should be no fear regarding new technologies. They should just be used properly.”
France Jamet, from France and a member of National Rally, “We are abandoning our possibility of deciding on the direction which this highly sensitive sector will take in the future. It is our duty to guarantee to our citizens that no public data will be processed outside our nation’s. We have the duty to ensure that we can choose our own routes in the face of the hegemony of private private monopolies.”
You can watch the entire debate here.