The new rules on preventing and combating tax fraud affect virtual currencies

The new duties of communication to the AEAT and their scope

On 10 July, Law 11/2021, of 9 July, on measures to prevent and combat tax fraud, transposing Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, amending various tax rules and on the regulation of gambling, was published in the Official State Gazette (BOE).

Until 10 July, service providers operating with virtual currencies in Spain were not obliged to communicate personal data to their customers and the vast majority of them only requested, in order to register their users on their platforms, minimal information, which did not require more information than the user name and an email account.

This new regulation amends Law 35/2006, of 28 November, on Personal Income Tax in several respects, and, in turn, in order to strengthen tax control over taxable events relating to virtual currencies, two new reporting obligations are established in relation to the holding and operation of virtual currencies.

A formal reporting obligation is included for persons and entities resident in Spain that provide services on behalf of third parties to safeguard private cryptographic keys and to hold, store and transfer virtual currencies. It also applies to permanent establishments and entities resident in Spain that provide exchange services between virtual currencies and legal tender, or between different virtual currencies that intermediate in any way in such transactions. Likewise, it obliges those who make initial offers of new virtual currencies that are delivered in exchange for the contribution of other virtual currencies in Spanish territory. In addition, an obligation is introduced to provide information on the balances held by holders of virtual currencies, together with the obligation to provide information on the transactions involving virtual currencies (acquisition, transmission, exchange, transfer, collection and payment) in which they are involved. The same obligation extends to those who make initial offerings of new virtual currencies.

Given this regulatory scenario, we must bear in mind that the regulation only refers to virtual currencies understood in the terms of DIRECTIVE (EU) 2018/843 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing and amending Directives 2009/138/EC and 2013/36/EU.

In this regard, the Directive made it clear that providers of services exchanging virtual currencies for fiat currencies (i.e. coins and banknotes designated as legal tender and electronic money of a country accepted as a medium of exchange in the issuing country), as well as providers of electronic wallet custodian services, are not obliged by the Union to detect suspicious activity. Terrorist groups may therefore be able to transfer money into the Union financial system, or within virtual currency networks, by concealing transfers or enjoying a certain degree of anonymity on these platforms.

This Directive therefore extended the scope of Directive (EU) 2015/849 to include providers of services exchanging virtual currencies for fiat currencies, as well as providers of electronic wallet custodian services. For the purpose of combating money laundering and terrorist financing, competent authorities should be empowered, through the obliged entities, to monitor the use of virtual currencies. Such monitoring provides a balanced and proportionate approach that safeguards technical developments and the high degree of transparency achieved in the field of alternative financing and social entrepreneurship.

The Directive also highlighted that the anonymity of virtual currencies allows for their possible misuse for criminal purposes. The inclusion of virtual currency for fiat currency exchange service providers and electronic wallet custodian service providers does not fully address the issue of anonymity associated with virtual currency transactions, as anonymity is maintained in much of the virtual currency environment, as users may conduct transactions outside such service providers. To combat the risks related to such anonymity, national Financial Intelligence Units (FIUs) should be able to obtain information enabling them to link virtual currency addresses to the identity of the owner of the virtual currency. In addition, the possibility for users to make, on a voluntary basis, a self-declaration to the designated authorities should be further explored.

Furthermore, in order to delimit the new obligations, it should be borne in mind that virtual currencies should not be confused with electronic money as defined in Article 2(2) of Directive 2009/110/EC of the European Parliament and of the Council (5), with the broader concept of funds as defined in Article 4, point 25 of Directive (EU) 2015/2366 of the European Parliament and of the Council (6), with the monetary value stored on exempt instruments as specified in Article 3(k) and (l) of Directive (EU) 2015/2366, and with gaming coins, which can only be used in the specific context of a game.

Although virtual currencies can often be used as a means of payment, they may also be used for other purposes and find wider applications, such as means of exchange, investment, store-of-value products or use in online casinos. The aim of this Directive is to cover all possible uses.

Finally, local currencies, also known as complementary currencies, which are used in very limited networks, such as a city or a region, or by a small group of users, should not be considered as virtual currencies.

At AddVANTE we are closely monitoring the regulatory compliance that new virtual currency service providers will have to comply with in Spain, both in their direct activity and in their marketing, and we therefore provide them with our legal and tax support and advice on the strategic and regulatory configuration as well as on the processing of the licences for activity as digital asset service providers to which we will be subject to regulatory requirements in the coming months.