Spain Implements Stricter Reporting Rules for Cryptocurrency Holdings

As countries worldwide are increasingly working on regulating the taxation of virtual assets, Spain has introduced new legislation that obliges its residents to report their cryptocurrency holdings on foreign platforms by March 31, 2024.

The Spanish Tax Administration Agency, known as Agencia Tributaria, has introduced a dedicated tax declaration form called form 721 for reporting virtual assets held abroad.

This recent announcement, published in the official state gazette on July 29, 2023, outlines the timeline for submitting form 721 declarations, which will run from January 1 to the end of March 2024. Both individual and corporate taxpayers must disclose the amount of funds they have in their foreign cryptocurrency accounts as of December 31, 2023.

It’s worth noting that the reporting requirement applies only to individuals with cryptocurrency balances exceeding 50,000 euros (approximately $55,000). Crypto holders using self-custodied wallets, on the other hand, must report their holdings through the standard wealth tax form 714.

This development comes seven months after reports emerged that the Spanish Tax Administration Agency planned to send 328,000 warning notices to taxpayers in 2022, a 40% increase from 2021. This increase underscores a growing emphasis on enforcing tax compliance within the cryptocurrency sector, with 150,000 warnings issued in 2022 compared to 15,000 in 2021.

In a separate development, Spain’s oldest law enforcement agency, the Guardia Civil, reportedly dismantled a criminal group in August that had orchestrated a significant cryptocurrency scam, defrauding over 3,000 people worldwide and embezzling nearly $110 million.

Despite the heightened regulatory scrutiny in the Spanish cryptocurrency industry, major exchanges continue to expand their presence in the region. For example, earlier this year, Crypto.com obtained a Virtual Asset Service Provider (VASP) registration from Spain’s central bank in June, indicating the continued interest and presence of prominent cryptocurrency platforms in the country.

Notably, several governments worldwide are intensifying their efforts to combat potential underreporting of taxable transactions in the cryptocurrency sector. In the United States, the Internal Revenue Service (IRS) began sending letters to taxpayers with cryptocurrency transactions in July 2019 to raise awareness of tax obligations and correct past errors. The IRS gathered information on tax noncompliance through various means, including legal actions against cryptocurrency exchanges such as Coinbase in 2016 and Kraken in 2021.

In 2020, additional letters were sent, and the IRS issued Notice CP2000, specifying the alleged amounts owed to the IRS.

More recently, 48 countries jointly committed to combating offshore cryptocurrency tax evasion, and the UK-led Crypto-Asset Reporting Framework (CARF) was designated as the OECD’s new tax transparency standard. Effective in 2027, CARF aims to address the lack of information exchange and promote international collaboration for tax compliance.

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