EU crypto tax advances as US groups take aim at Illinois law

European Union lawmakers are backing digital asset tax bills, while in the United States, industry groups are actively opposing the incoming tax law. Meanwhile, the German government is seeking a 25% tax on digital asset gains, and Bulgaria passed legislation that aligns the country with EU reporting rules, just as two leading blockchain trade associations in the U.S. filed a court motion seeking to block an incoming tax law in Illinois that they argue “unfairly” targets digital assets.

• Germany floats 25% crypto tax
• Bulgaria advances crypto tax reporting
• Crypto groups push back on Illinois tax

Germany proposes 25% tax on crypto gains

A draft bill from Germany’s Federal Ministry of Finance, led by Vice Chancellor and Finance Minister Lars Klingbeil, would tax gains on qualifying digital asset sales at a flat rate of 25%, regardless of how long the asset was held, bringing crypto broadly in line with the tax treatment of stocks and other financial investments.

According to a draft law seen by local outlet Handelsblatt, first the proposed changes would affect digital assets acquired after December 31, 2026, with Klingbeil reportedly expecting the policy to generate tax revenue of €160 million ($186 million) in 2028 and potentially up to €350 million ($407 million) by 2030

At present, Germany generally treats privately held digital assets as “other assets” for tax purposes. As such, gains from disposals are generally taxable if the asset is sold within one year of acquisition, but tax-free if the asset is held for more than one year. In addition, gains from private disposal transactions are exempt where the taxpayers’ total gains from such transactions during the year are less than €1,000 ($ 1,163)—crypto-to-crypto swaps are considered taxable disposals for these purposes.

However, under the finance minister’s proposed reform, qualifying digital assets would be brought into Germany’s capital-income tax regime from 2028, ending the tax-free treatment available after the one-year holding period. Gains would generally be subject to the 25% capital-income tax plus the 5.5% solidarity surcharge, producing an effective rate of 26.375%, with the €1,000 ($1163) saver’s allowance potentially still available. Lending and staking income would also be treated as capital income.

The draft reportedly excludes certain non-fungible tokens (NFTs), security tokens, stablecoins, and real-world-asset (RWA) tokens, depending on their characteristics.

According to the wording of the bill, seen by Handelsblatt, the justification for the proposed new tax rules was that “crypto assets are increasingly a form of private investment and are acquired, used and sold in a growing market.”

Klingbeil reportedly went further, saying “it is unfair when hard-earned income and capital gains are taxed, but profits from speculation in crypto assets remain largely tax-free.”

The proposed changes would remove a key incentive for traders and investors to hold digital assets long-term and thus may be received poorly by the industry in Germany. The bill is currently in early coordination within the federal government, so changes are still possible, but with its exemptions for stablecoins—which are a key area of focus in the EU at the moment—along with the potential windfall it may bring in, it seems likely it won’t face excessive political opposition.

Bulgaria to update tax reporting rules

Following hot on the heels of Germany’s proposed crypto tax reforms, it was reported last week that Bulgaria’s National Assembly had voted overwhelmingly in favor of the second and final reading of legislative amendments that establish reporting and information-exchange obligations for crypto-asset service providers (CASPs) in the country, enabling tax authorities to obtain and exchange the data for tax purposes.

On September 9, the ‘Tax and Social Security Procedure Code’ amendment bill, which transposes two European directives into Bulgarian law, was approved with 149 votes in favor, none against, and 10 abstentions, according to local outlet The Sofia Globe.

The bill introduces EU rules on top-up taxes for large multinational enterprise groups, pursuant to EU Council Directive 2022/2523, which enforces a global minimum effective corporate tax rate of 15% for large multinational and domestic enterprise groups.

But perhaps more significantly, it also transposes EU directives for the automatic exchange of digital asset trading data, which aligns the country with the Organization for Economic Co-operation and Development’s (OECD’s) ‘Crypto-Asset Reporting Framework (CARF),’ a global tax transparency initiative designed to set a standard for tax reporting and improve the exchange of information between countries on digital asset transactions, to combat tax evasion and avoidance.

As of June, 76 jurisdictions worldwide had committed to implementing CARF, with most set to begin automatic information exchanges on crypto-asset transactions by 2027. Bulgaria is among the 47 jurisdictions that have committed to undertaking their first exchanges by 2027.

The newly approved tax bill requires CASPs subject to the reporting rules to register with and provide information to the country’s tax agency, the National Revenue Agency (NRA). Companies will have to provide the NRA with data on each digital asset user, including names, address, date and place of birth, the member state or partner jurisdiction of residence for tax purposes, and tax identification number.

They will also be obliged to provide information about each type of digital asset in which the provider has carried out transactions, transfers and exchanges, including the total gross amount received from transactions, the number of units traded, and the number of purchases or sales of crypto assets against fiat currencies.

EU member states are required to transpose these rules into national law under Directive DAC8, which provides for automatic exchange of information on crypto-assets between EU countries. Member states were required to transpose DAC8 by December 31, 2025, and apply its provisions from January 1, 2026. Bulgaria is therefore late to the party with its tax amendments.

The directive aims to address the risks posed by crypto-assets with respect to tax transparency by strengthening international administrative cooperation. In combination with the OECD’s CARF, it provides for the automatic exchange of information on crypto-assets, with the ultimate goal of combating tax evasion and tax avoidance on a global level. 

While EU nations such as Germany and Bulgaria are busy introducing new digital asset tax rules, across the Atlantic, efforts are underway to rescind some of them.

Blockchain trade associations seek to block Illinois crypto tax

U.S.-based digital asset trade associations Blockchain Association and Crypto Council for Innovation filed a motion with the Circuit Court of Sangamon County, Illinois, asking it to bar the State of Illinois from enforcing the Digital Asset Tax Act (DATA), before it takes effect on January 1, 2027. The pair claim they aim to protect digital asset firms from “suffering irreparable harm” at the hands of “unlawful” legislation.

In June, Illinois became the first U.S. state to enact a transaction-based tax specifically targeting digital-asset activity, with DATA, which imposes a 0.2% tax on the value of digital assets exchanged, transferred, or stored on behalf of Illinois customers, effective at the beginning of next year.

The law also requires digital asset brokers operating in Illinois to register with the state’s Department of Revenue, while brokers based outside Illinois can be deemed to maintain a place of business in the state if their gross receipts from sales of digital asset business activity to Illinois customers reached $100,000 during the preceding 12 months. The statute separately imposes registration and compliance requirements on digital asset brokers, regardless of whether they meet this $100,000 threshold.

Certain violations of the law, including failure to register, may be subject to significant penalties, including fines of up to $25,000 and even 2 to 5 years in prison.

According to a September 9 press release from the two trade associations, Illinois also projects roughly $60 million in revenue from the tax.

The pair previously challenged what they describe as “the unlawful State tax” in August, on the grounds that it—among other accusations—“imposes a new tax on digital-asset activities that is unprecedented in Illinois and nationwide” and that expressly taxes only digital-asset activities, without similarly taxing comparable non-digital activity, such as exchanging dollars for euros or depositing and storing gold in a safe deposit box.

The newly filed motion seeks a preliminary injunction to stop the State from collecting the tax before it goes into effect, arguing that digital asset businesses in the state are likely to lose customers, who will simply shift to assets not subject to any similar tax.

“Companies are being asked to spend millions to build systems for a tax that violates their Constitutional rights without answers to basic questions about what is taxed and when, all under the threat of criminal penalties,” said Ji Hun Kim, Chief Executive Officer of the Crypto Council for Innovation. “These costs are being borne right now, against a January 1 deadline, forcing companies to divert key re

At the U.S. federal level, the Internal Revenue Service (IRS) generally treats digital assets as property rather than currency. Sales of digital assets can produce taxable gains or losses; for taxpayers holding the assets as capital assets, short-term gains are generally taxed at ordinary income rates, while qualifying long-term gains generally receive preferential rates. Mining, staking, airdrops, and receiving digital assets for services can also, depending on the circumstances, give rise to ordinary taxable income.

In contrast, according to the trade associations, the Illinois Act taxes a percentage of the full value of a digital asset each time a customer exchanges, transfers, or stores the asset in Illinois using a digital asset broker, “even if the customer buys nothing, sells nothing, gains nothing, and transfers no ownership.”

The Act further requires brokers to collect and remit the taxes, on pain of criminal penalties, while requiring digital asset holders in the state to pay the tax absent broker collection.

“Illinois has enacted a first-in-the-nation tax that unfairly singles out digital commerce, fragments a national market, and exposes companies and ordinary Illinoisans to severe penalties,” said Summer Mersinger, Chief Executive Officer of the Blockchain Association.

Mersinger went on to warn that “if this Act stands, Illinois will not be the last state to try it.”

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Source: coingeek.com