Europe's decentralized finance (DeFi) sector currently presents a significant tax challenge, but this situation is unlikely to persist, according to a former official at the Organisation for Economic Co-operation and Development (OECD). The inherent complexities in tracking and taxing DeFi transactions have created a "tax gap," where revenue owed goes uncollected. However, international efforts are underway to close this gap through enhanced regulatory frameworks and information sharing.
The OECD has been at the forefront of these efforts, developing the Crypto-Asset Reporting Framework (CARF) to establish a global standard for tax reporting on digital asset transactions. Launched on January 1, 2026, CARF mandates that crypto-asset service providers report user transaction data to tax authorities. This initiative aims to increase transparency and facilitate the exchange of information between countries, thereby combating tax evasion and avoidance in the crypto space. As of late 2025, 75 jurisdictions had already committed to implementing CARF, including the UK, Brazil, Indonesia, Japan, and most EU nations.
The European Union is also taking decisive steps to regulate crypto assets, including DeFi. The EU's Directive on Administrative Cooperation (DAC8) extends tax regulations to both centralized and decentralized platforms, bringing DeFi and NFT transactions under its purview. These measures ensure businesses using crypto for transactions comply with transparency rules. By 2025, DAC8 and CARF will make crypto tax compliance unavoidable, granting governments access to real-time transaction data and increasing the likelihood of audits and penalties for undeclared assets.
Several EU member states are already revising their tax laws to align with OECD and EU standards. For example, Portugal, previously a crypto tax haven, now applies a 28% capital gains tax on short-term holdings and may introduce new rules for staking and DeFi income. Spain enforces high taxes and aggressive reporting requirements, with individuals holding over €50,000 in crypto required to report these assets. Non-compliance can result in substantial fines.
These evolving regulations necessitate that crypto investors improve their record-keeping and understanding of local tax incentives to ensure compliance and manage their tax liabilities. The increasing scrutiny of crypto transactions signals a clear shift towards greater regulation and enforcement, reducing opportunities for tax avoidance in the DeFi sector. While challenges remain, the concerted efforts by international bodies and national governments suggest that the DeFi tax gap in Europe will inevitably narrow in the coming years.
