Enforcing Taxes on Cryptocurrencies: Limits to Taxation in the Digitalized Economy

Digitalization challenges tax collection by allowing economic activity to move beyond the reach of domestic enforcement. We study this challenge in the cryptocurrency market by exploiting the introduction of domestic third-party reporting, a cornerstone of modern tax enforcement. Combining micro data on crypto transactions, tax returns, and cross-border bank transfers from Denmark, we document pervasive crypto tax noncompliance. Third-party reporting modestly increases self-reported income while simultaneously inducing a shift in activity beyond the regulatory reach of domestic tax authorities. This flight to opacity limits the effectiveness of unilateral tax enforcement and highlights the need for international coordination.

The Working Paper was updated in August 2026.