Importance of Crypto Services and Their Spread
There is much euphoria in the crypto markets, but also sudden crashes with some platforms failing. Nonetheless, the sector shows a general upward trend. For instance, at the beginning of the year, Bitcoin was the tenth largest asset in the world with a market value of around $1 trillion, while Amazon was solidly at the top of the list with a value of around $1.7 trillion. This context is supported by the functionalities that various blockchain networks can offer, such as the tokenization of tangible and intangible assets.
Simultaneously, both regulatory and behavioral frameworks have imposed necessary operational constraints that technological and financial providers must adopt to transparently offer cryptocurrency services. It is unfortunate that some industry experts are not sufficiently informed about the regulatory framework, risking additional time and money to acquire the necessary authorizations (compliance) just when they are about to market a new “crypto service.” Similarly, consumers, who wish to invest confidently in crypto, must now necessarily use providers registered with the Organization of Agents and Brokers.
This analysis cannot be exhaustive, as regulatory dynamics are always evolving and because some details, such as tax aspects, can generate different interpretations. However, it aims to provide general guidance to operators and consumers to appropriately direct their choices.
The European Regulation on Crypto Assets (MICAR)
Published in the Official Journal of the European Union on June 9, 2023, the MICAR (Market in Crypto Assets Regulation, 2023/1114) will apply some provisions by 2024, while others will come into effect at the beginning of 2025. This regulation aims to identify and standardize cryptocurrency-related activities within the EU, particularly regarding their issuance and subsequent trading by authorized entities.
The regulation provides a general definition of a crypto-asset: “a digital representation of value or equivalent rights, which can be transferred and stored electronically, using distributed ledger technology or similar technologies.”
In this context, three categories of cryptocurrencies with different characteristics are identified:
- Asset Referenced Token (ART): Crypto-assets that represent values generally stable over time, referring to “fiat currencies” that have legal tender (euro, dollar), commodities (gold), or combinations of these crypto-assets.
- Electronic Money Token (EMT): Essentially “electronic money tokens” primarily used as a means of exchange, similar to “quasi-money.”
- Utility Token (UE): Made available to provide specific goods and services to be used at the issuer, in the form of “bonuses.”
Crypto-asset Service Providers (CASPs) are professional entities that offer multiple services within the cryptocurrency sector (managing platforms for trading crypto, executing purchase, sale, and custody orders). They are subject to specific authorization and “supervision” by designated national bodies, allowing them to operate in any EU country through “passporting.”
Nothing prevents Crypto-asset Service Providers from also offering “technological services” related to blockchain or capable of preparing specialized digital systems and processes.
The MICAR also includes strengthened protections for investors, imposing specific governance obligations on issuers during both the issuance phase (Initial Crypto-assets Offerings, ICO) and trading on specific platforms.
With the advent of MICAR, cryptocurrencies have finally acquired regulatory legitimacy with a specific operational perimeter; however, they should not be confused with financial instruments, as these have specific characteristics and are regulated by the MiFID framework, the European Directive on financial markets.
Italian Legislation on Crypto Activities (VASP Decree)
The Ministry of Economy issued the “VASP Decree on January 13, 2022,” to anticipate and partly integrate what has already been established by the MICAR regulation. This provision particularly outlines the behaviors required of those who offer virtual currency management services to Italian clients.
Here are the key points summarized:
- To whom does the regulation apply? Individuals and legal entities residing in Italy who professionally offer services related to virtual currencies, namely Virtual Asset Service Providers (VASP).
- What services do VASPs offer? Issuance, buying, selling of virtual currencies, conversion into legal tender currencies, management, and custody of virtual asset wallets (custodial wallets).
- Is VASP Registration mandatory? Entities providing crypto services must register with the Register of Virtual Currency Operators (VASP Register) managed by the national competent authority, namely the OAM (Organization of Agents and Brokers). As of May 2024, about 150 operators are registered, mainly limited liability companies based in Milan.
- What are the main obligations of VASPs? Solid organizational structure, periodic reporting, and the obligation to highlight transactions with identification of involved parties.
For completeness, it should be noted that supervised entities in Italy (banks, investment companies, and insurance companies) can offer crypto asset services on their behalf and for their clients, provided they have an adequate organization and submit a specific communication to the supervisory authority, such as the Bank of Italy.
Obligation to Communicate Crypto Activity Movements (DAC 8 Directive and TFR Regulation)
In October 2023, the European Council approved the Directive Administrative Cooperation 8 (DAC 8) in conjunction with MICAR, requiring all crypto-asset service providers (CASPs) to automatically collect and make available to national tax administrations all information related to crypto transactions.
This regulation will apply from January 2026 with national implementation. DAC 8 marks the end of a sort of banking secrecy on cryptocurrency activities, bringing new evidence into the databases of tax administrations, thus enabling more targeted and effective controls.
From a functional perspective, DAC 8 integrates the application of the Transfer of Funds Regulation (TFR), relating to the traceability of information on originators and beneficiaries of crypto fund transfers, to investigate and prevent money laundering and terrorist financing activities.
Tax Treatment of Crypto Activities in Italy
With the 2023 budget law (Law no. 197/2022, paragraphs 126-147), a structured tax regime for crypto activities was finally introduced through the reform of Article 67 of the Tuir. Previously, the Italian Revenue Agency classified it under the framework for traditional currencies.
Firstly, a general definition of crypto activities is introduced: “A digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or a similar technology.”
Secondly, it is stipulated that capital gains generated from crypto-asset trading by individuals not engaged in business activities are subject to a 26% substitute tax (Legislative Decree no. 461/1996) if the amount exceeds 2,000 euros.
This regime also extends to managed savings, with an option for the consumer. In such circumstances, authorized intermediaries (CASPs and banks) managing the individual investor’s financial position will determine the possible capital gain and the related tax.
Moreover, an “asset value tax on crypto activities” of 0.2% is applied if held with non-resident platforms or intermediaries or digital wallets (via the Ivafe model), with an obligation of fiscal monitoring.
The 2024 budget law also confirms the above tax framework.
Conclusions
As evident from the above, it can no longer be claimed that Italy lacks a civil and tax regulation identifying and qualifying cryptocurrency services, although some regulatory aspects proposed by MICAR are not yet fully implemented. Therefore, all sector operators and investors will need to continue developing new technological aspects, investing in the diverse crypto market with advanced skills and analysis, but also become more familiar with interpreting regulatory and compliance aspects to avoid passive interventions and sanctions from supervisory bodies and tax administrations.
SiteLinks:
https://www.grandviewresearch.com/industry-analysis/blockchain-technology-market#:~:text=b.,USD%201%2C431.54%20billion%20by%202030.
https://www.bain.com/insights/the-future-of-insurance-as-risks-mount-insurers-aim-to-augment-protection-with-prevention/
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