How the taxman keeps tabs on crypto-taxpayers

How the taxman keeps tabs on crypto-taxpayers

👉 The news. The tax return campaign is coming to an end.

👉 The background. The OECD wants to extend the automatic exchange of information between exchange platforms and tax administrations.

👉 Why it matters. It will be increasingly difficult to hide your cryptos.

The end of the tax return campaign is fast approaching. Before the evening of 8 June (11.59pm), all French taxpayers must have sent their full details to the tax authorities or face... penalties. And don't think, as some do, that you'll be able to slip through the net! While taxation is not an exact science, the tax authorities have made huge strides in recent years when it comes to cryptos. It now has the means to identify both small and large investors more easily.

As our survey shows, the main lever used by the tax authorities is the bank account, which acts as a kind of financial identity card. "Tax audits are triggered when there are inconsistencies between declarations and the information available to the tax authorities," confirms Alexandre Lourimi, a tax lawyer with ORWL, a firm specialising in disruptive technology law. If you receive a transfer from an exchange platform even though you have not provided the tax authorities with any information about it, you could be liable to penalties of up to €750 per undeclared account. The amount is doubled where the value of the accounts exceeds €50,000.

This is followed by an adjustment on undeclared capital gains, which can be particularly painful. In the event of deliberate breach or bad faith on the part of the taxpayer, the surcharge is increased to 40%.

Banks are under increasing pressure from regulators to combat fraud and money laundering. As a result, they tend to report numerous account movements to TracFin, the intelligence service responsible, among other things, for combating tax fraud, especially when these come from a crypto exchange platform. TracFin then passes the file on to the tax authorities, who trace it back to the fraudster. "The number of intelligence notes sent to the tax authorities is constantly increasing and these could be a privileged source of information", adds Alexandre Lourimi.

Unusually high amounts

Another cluster of clues that can make the authorities sit up and take notice: the amounts you receive in your account. The banks themselves define their alert thresholds, but the first of these often boils down to an 'unusually' high inflow of money. "There is no precise amount, it depends on the individual", notes the tax lawyer. "Someone who earns 10,000 euros a month and receives 15,000 euros in their account from a platform will be less likely to attract attention than someone on RSA who receives the same amount," explains Alexandre Lourimi.

The tax authorities have a specialist team based in Paris, which can intervene itself or help local inspectors who request it. This human effort, based on cross-referencing sources of information, is carried out by the Direction Nationale d'Enquêtes Fiscales (DNEF), a department attached to the Direction Générale des Finances Publiques (DGFIP). If necessary, this team of crypto-experts can use Chainalysis-type tools to trace all crypto transactions that pass through addresses known to the taxpayer (you need to be a very big fish for that, though).

There is also a 'data mining' department at Bercy that scans social networks for potentially compromising information. "A standard of living out of all proportion to one's income attracts attention", warns a person close to Bercy. "But this search activity is mainly automated, it will never replace human work", he insists.

How the tax authorities communicate with exchange platforms

The platforms are not subject to spontaneous reporting obligations to the tax authorities. They therefore do not have to inform the authorities about their users' activity. However, as part of their obligations to combat money laundering and the financing of terrorism, they may, like banks, be required to spontaneously send financial intelligence services, such as Tracfin in France, information that may be used in tax audits (via suspicious transaction reports).

When it is the authorities that directly suspect a taxpayer of being in an irregular situation, they may approach a platform. "If the platform is registered with the Autorité des marchés financiers (AMF), it is obliged to respond to requests for information", insists Alexandre Lourimi. So don't expect to slip through the net if you're a customer of Coinhouse or Paymium: these companies face hefty fines if they refuse.

In the case of foreign platforms, it's sometimes more complicated for the taxman to get answers, even though most of the giants in the sector comply. According to our information, the American platforms Coinbase and Kraken all respond to the French tax authorities, although the large number of requests can sometimes result in lengthy delays. On the other hand, platforms based in Asia or in tax havens may be less cooperative.

"As in the traditional financial sector, the data that is hardest to access is that held by players domiciled in countries that do not cooperate with France on tax matters", insists Alexandre Lourimi. These so-called "non-cooperative" states appear on a list that is constantly being reduced as France negotiates administrative assistance and information exchange agreements.

According to our information, the tax authorities would not bother to initiate checks abroad when the sums involved are modest. "The audit must not cost more than it can bring in, if it is necessary to put a civil servant on it for six months, inevitably it will not be profitable", explains an expert on the subject.

Soon automated information flows

This "tolerance" towards certain platforms could soon come to an end, however. The Organisation for Economic Co-operation and Development (OECD), which brings together 38 countries (including France), is currently working on an extension to cryprot platforms of the spontaneous reporting standards applied to banks.

Since 2014, these standards have enabled the tax authorities of a member country to receive information each year on the financial assets held by its tax residents abroad. So when a resident opens an account abroad, the tax authority in the host country informs the tax authority in the country of origin. The OECD's aim is to extend this system to crypto exchange platforms. Coinbase, for example, would provide the US administration with a list of its customers every year, before the latter would automatically transmit to France the identity of all its residents who use the platform.

"The public consultation has just opened, so it's hard to know when this project will be applied, but it's certain that it will one day concern crypto exchange platforms," assures Alexandre Lourimi. "The mass of information spontaneously available to the tax authorities will increase substantially," stresses the lawyer, "tomorrow it will be very easy to find out who has an account, where, and also potentially the balance on the platforms."

Did Binance provide the list of its French users in exchange for the PSAN? 🤔

A rumour claiming that Binance had provided the tax authorities with a list of all its French customers recently circulated. This 'deal' is said to have been concluded after the Chinese giant obtained registration as a digital asset service provider (PSAN) from the Autorité des marchés financiers (AMF). When questioned, Binance categorically denied this. According to lawyer Alexandre Lourimi, "there is no need to negotiate this kind of agreement, because as Binance is now registered in France, the tax authorities can ask it to report on all the users it is interested in, such as all those with a balance of more than €5,000".

Everything that matters in Web3. Each week.
Try insider for free, for 30 days.
All that matters in crypto.
Deciphering, insights, Data. Access the best of the ecosystem.
In this article
No items found.
Read next
No items found.
In this category
No items found.