The European Union (EU) announced on December 8 that it will mandate cryptocurrency firms to register their European users' holdings to tax authorities. It could have wide-reaching implications, including forcing non-EU based companies to have to register with tax entities within the bloc.
The new law, which is inspired by international standards designed to curb crypto tax evasion, could also apply to stablecoins, derivatives and non-fungible tokens (NFT). Current tax rules prevent people from stashing money in foreign bank accounts to avoid taxation.
"The obligation to report income earned through crypto-asset investments and the exchange of such information will help member states receive a full set of information in order to collect tax revenues due," said a draft document of the bill seen by CoinDesk, a news site specializing in bitcoins and digital currencies.
Based on the bill, crypto companies would have to collect and verify users' personal information, including names, addresses, social security numbers and dates of birth, which would then be sent to the tax authorities in the users' country of tax residence.
"Anonymity means that many crypto-asset users making significant profits fall under the radar of national tax authorities. This is not acceptable," EU Commissioner for tax Paolo Gentiloni said in a statement.
However, the enforcement of the measures was not clear and this raised eyebrows of critics in relation to personal data access of whoever will control and manage the information.
According to Bitcoin Magazine, the cryptocurrency industry has various entities and actors residing in various jurisdictions, including some who claim no base of operations.
"Beyond that, there should be a concern for the honeypot of user data that registering user holdings creates. Often, holdings on centralized exchanges (which are dangerous in their own right) are paired with sensitive identifying information, which could potentially be used by criminals to attach people to their holdings," the article included.
Report: Tax prep software forwarded consumer data to tech giants Meta and Google
The critics' concerns over surveillance proved its point through a recent investigation of the nonprofit Markup.
According to the report published by Verge, popular tax software, including TaxAct, TaxSlayer and H&R Block, sent personal financial information to Facebook's parent company Meta through its widespread code, known as a pixel, which helps developers track user activity on their sites. (Related: Google and Meta caught harvesting your sensitive financial information through tax prep software.)
Meta pixel trackers in the software sent information like names, email addresses, income information and refund amounts to Meta, violating its policies. It also found that TaxAct had transmitted similar financial information to Google via its analytics tool, though that data did not include names, the news outlet reported.
The probe results included that Facebook could use the information from the tax websites to power its advertising algorithms, even if someone using the tax service doesn’t have a Facebook account. This proved that Meta has tools that can be used to track people around the web even without the knowledge of the users.
The allegations have been denied by "experts" in this field. Executives at Ramsey Solutions, a financial advice and software company that uses a version of TaxSlayer, said they "were never notified that personal tax information was being collected by Facebook from the Pixel," and that their firm already informed TaxSlayer to deactivate the Pixel tracking from SmartTax.
Big Tech companies also sent their statements to CNBC regarding users' privacy concerns.
A Meta spokesperson claimed advertisers should not send sensitive information about people through their business tools. "Doing so is against our policies and we educate advertisers on properly setting up business tools to prevent this from occurring. Our system is designed to filter out potentially sensitive data it is able to detect," the spokesperson said.
Meanwhile, a Google spokesperson said: "Any data in Google Analytics is obfuscated, meaning it is not tied back to an individual and our policies prohibit customers from sending us data that could be used to identify a user. Additionally, Google has strict policies against advertising to people based on sensitive information."
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