OECD pushes for tax transparency through Crypto-Asset Reporting Framework
DISCLAIMER: This post was last modified on 14 October 2022. Some information in this article may not be updated.
The Organisation for Economic Co-operation and Development (OECD) published the Crypto-Asset Reporting Framework (CARF) for G20 countries on 10 October 2022.
The CARF is a new tax transparency structure, released to respond to the G20’s request that the international body develop a system for reporting and information sharing on crypto-assets across nations. It expands the changes already made to address digital economy tax transparency issues through the Common Reporting Standard (CRS).
Analysing the Crypto-Asset Reporting Framework (CARF)
The main idea of crypto-assets is to transfer and hold currencies without the involvement of conventional financial intermediaries and any central administrator having complete knowledge of both the transactions made and the holdings of crypto-assets. In recent years, a few new intermediaries and service providers, many of which are still unregulated at the moment, have emerged, including wallet and exchange platforms.
With the rising popularity and wide-scale adoption of and transition to crypto-assets in the financial world, the new transparency initiative comes at a critical time.
The CRS was created with a wide scope in terms of the financial information to be reported, the account holders and the financial institutions subject to reporting in order to reduce the opportunities for taxpayers to avoid reporting. As a result, it does not adequately cover crypto-assets and related transactions, presenting risks for tax evasion in the digital market while undermining the advances made by the CRS.
This is where the CARF comes into play.
In order to maintain transparency in crypto transactions, the CARF automatically exchanges taxpayer information with local regulators on an annual basis. It subjects crypto exchange transaction service provider acting on behalf of consumers to reporting requirements. The reporting standard expands its coverage to include NFTs, DeFi, cold wallets, wallet addresses and intermediaries like crypto exchanges and DeFi providers.
Brokers and dealers in crypto-assets, as well as owners of crypto-asset ATMs, will all be considered intermediaries under the OECD’s reporting requirements. Intermediaries will be required to report to the appropriate authorities the following four types of transactions:
- exchanges between fiat currencies and crypto-assets;
- trades involving one or more different types of crypto-assets;
- transactions where crypto-assets are used to make a retail payment; and
- crypto-asset transfers.
Impact of CARF on tax transparency
According to the OECD proposal, intermediaries that provide exchange transaction services in relevant crypto-assets will be fully responsible for CARF reporting. Because they fall under the scope of the Financial Action Task Force (FATF), these intermediaries also qualify as required entities, giving them the broadest access to the market value of crypto-assets and the relevant exchange activities.
The OECD includes not only its own exchanges but also those of other intermediaries that provide similar services, such as dealers and crypto-asset brokers. As a result, intermediaries are able to collect and analyse financial data about their customers.
Moreover, the OECD has defined the CARF scope of application to include decentralised exchanges and finance considering the FATF’s revised guidelines on virtual asset providers. Regarding the actual reporting, reporting crypto asset service providers will be liable for following the laws in reporting jurisdictions on:
- where they pay taxes;
- where they are incorporated and organised under national law and are required to file tax returns;
- where they are managed;
- where they operate from a fixed location and business; and
- where they conduct relevant transactions through a branch in a jurisdiction that has adopted the rules.
Next steps
The OECD will continue to work on the operational and legal instruments over the coming months in order to facilitate the international exchange of data gathered in accordance with the CARF. This is also to ensure its wide-scale and successful implementation.
In addition, the OECD has presented the G20 with a series of further CRS amendments that aim to modernise the CRS’s scope to fully encompass digital financial products and enhance its operation. This effort will be reinforced, as with the CARF, by an update to the international legal and operational structures for the automatic exchange of information based on the updated CRS, as well as with a coordinated schedule to bring the agreed revisions into action.
Bolder compliance solutions
Calls for stricter regulations have always been anticipated as the crypto-asset industry gains more traction.
New rules, specifically reporting requirements, place more burden on crypto actors. With the arrival of CARF, the Bolder Group’s compliance solutions can help you meet regulatory reporting requirements.
Contact us today for more information.
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