The report titled “Bringing Tax Transparency to Crypto-Assets – An Update” was presented to the Organisation for Economic Co-operation and Development (OECD) and the G20 by the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) in July 2024. The report provides detailed information on the latest developments in the implementation of the Crypto-Asset Reporting Framework (CARF) worldwide.
The OECD and G20 are using the CARF to promote automatic exchange of tax information on a global scale, ensuring transparency in crypto-asset transactions and reducing the risks of tax evasion and avoidance. Currently, 58 OECD member countries have announced their commitment to implementing the CARF by the end of 2027. The TaxDAO research team interprets the key points of the report and discusses the future trends in global tax information exchange based on this document.
2. Main Contents of the Report
2.1 Overview of the Report and Key Timeframes for CARF Implementation
The report “Bringing Tax Transparency to Crypto-Assets – An Update” begins with an introduction to the background and purpose of the report. It discusses the definition, uses, and development of crypto-assets, as well as the challenges they pose to tax transparency and information exchange. It also calls for global standards for crypto-assets and discusses the efforts of the G20 and OECD countries in developing the CARF. The report provides an interpretation of the CARF implementation, including the domestic legislative framework, international legal framework, technical framework, administrative framework, and confidentiality and data protection standards. It also discusses how the Global Forum can leverage its experience in implementing the Common Reporting Standard (CRS) to implement the CARF. The report highlights the work undertaken by the Global Forum to ensure widespread implementation of the CARF and summarizes the progress made in implementing the CARF, emphasizing its potential benefits for tax transparency and information exchange.
The goal of the Global Forum is to ensure that the majority of relevant jurisdictions begin automatic exchange of information on crypto-assets (AEOI) by 2027. As of the report’s publication, 58 countries and territories have publicly announced their support for the exchange of crypto-asset information based on the CARF by 2027, including 10 developing countries.
To ensure that countries can commence the exchange of CARF information by 2027, the Global Forum has set a key mid-term target. This target requires the completion of the commitment process for CARF by the Global Forum Plenary Meeting in 2024 (expected in November 2024). By the end of 2024, the Global Forum will identify the majority of jurisdictions committed to implementing the CARF and encourage these countries to enact domestic laws to commence the exchange of crypto-asset tax information by 2027. Additionally, developing countries may require technical readiness, and the CARF Working Group is discussing whether to allow certain countries limited flexibility to delay the implementation of CARF if necessary.
2.2 How the Global Forum Will Drive CARF Implementation
2.2.1 Introduction to CARF
The CARF aims to establish a unified framework for tax information exchange, addressing the regulatory challenges of crypto-assets and providing tax authorities with third-party data on taxpayers’ crypto-asset activities. The CARF is based on the Common Reporting Standard (CRS) and was completed by the OECD in 2023. The framework requires crypto-asset service providers (CASP) to comply with detailed due diligence requirements to identify information that needs to be reported and ensure accurate and timely reporting to tax authorities. The CARF includes rules and commentary on the scope of crypto-assets, entities and individuals subject to data collection and reporting requirements, transactions to be reported, and due diligence procedures to identify crypto-asset users, controllers, and relevant tax jurisdictions for reporting and exchange purposes.
Tax authorities in jurisdictions receiving reports from CASPs will exchange information and cooperate under the CARF framework to regulate crypto-assets on a global scale and ensure tax transparency.
2.2.2 Current Status of CARF Implementation
At the invitation of the G20, the Global Forum established the CARF Working Group to develop the commitment process for CARF by the end of 2024 to ensure widespread implementation of CARF globally. Participating countries are expected to commence the exchange of CARF information by 2027. The goal of the Global Forum is to ensure that all relevant jurisdictions begin implementing CARF at relatively uniform times to prevent any jurisdiction from becoming a tax evasion “loophole.”
To support CARF implementation, the Global Forum is developing necessary technical frameworks, including data reporting and exchange systems. These systems will ensure the accuracy and security of information and facilitate effective cooperation between countries.
2.2.3 Domestic Legislation for CARF Implementation
There is significant synergy between CRS and CARF, and the Global Forum plans to leverage this synergy to expedite CARF implementation. To implement CARF, governments need to establish domestic legislative frameworks that require CASPs to conduct due diligence procedures and report information. They also need to establish international legal frameworks for the exchange of reported information and develop necessary technical frameworks to receive CASP information and facilitate international exchange. Additionally, countries should meet expected standards regarding confidentiality and data protection to ensure the security and appropriate handling of exchanged information.
2.3 CARF Extends Automatic Exchange of Information (AEOI) to Crypto-Assets
2.3.1 Introduction to AEOI
Automatic Exchange of Information (AEOI) is an international tax cooperation mechanism aimed at enhancing tax transparency and preventing cross-border tax evasion and avoidance. It involves requiring financial institutions to report financial account information of their non-resident account holders and automatically exchanging this information with the tax authorities of the account holders’ jurisdictions. The core of AEOI is the Common Reporting Standard (CRS), which was jointly developed by the OECD and G20 countries in 2014. The CRS requires participating countries to collect and report financial account information of their non-resident customers through financial institutions and automatically exchange this information between participating countries.
2.3.2 Extending AEOI to Crypto-Assets
As mentioned earlier, CARF applies the automatic information exchange mechanism of CRS to crypto-asset service providers (CASP), requiring CASPs to report information on their non-resident customers’ crypto-assets and automatically exchange this information with the tax authorities of the customers’ jurisdictions. This enhances tax transparency in the crypto-assets field and helps prevent tax evasion and avoidance.
2.3.3 Specific Requirements of AEOI
Specific requirements of AEOI include account due diligence, where financial institutions need to conduct due diligence on their accounts to determine if the account holders are non-resident taxpayers and collect necessary information for reporting and exchange purposes. Information reporting requires financial institutions to report relevant information to their domestic tax authorities in accordance with specified formats and timelines. This information is then exchanged by tax authorities based on international agreements. Data protection and privacy are crucial in the information exchange process, and countries need to ensure the security and privacy of data to prevent unauthorized access by third parties. Finally, in terms of technical standards, countries participating in AEOI generally adopt unified technical standards and data formats to improve the efficiency and accuracy of information exchange.
Financial institutions or taxpayers that do not comply with AEOI requirements may face various penalties, including fines to compensate for tax losses resulting from their tax evasion or avoidance behavior. In severe cases, relevant countries may also impose sanctions such as revoking business licenses or restricting travel. However, the specific penalties are determined by the domestic laws of the respective countries and may vary internationally.
3. Potential Impacts of CARF Implementation
CARF implementation will have several potential impacts. Firstly, it will enhance tax transparency by significantly improving tax transparency in the crypto-assets field, enabling tax authorities to have more accurate information on taxpayers’ crypto-asset holdings and related income, effectively combating tax evasion and avoidance. Secondly, it will promote fair tax competition by establishing a level playing field through the global implementation of uniform crypto-asset reporting standards, preventing certain jurisdictions from becoming tax havens for evasion and avoidance. Thirdly, it will increase government revenue by enhancing tax transparency and promoting fair tax competition, thereby enabling governments to increase tax revenues and provide more funding for public services. Lastly, it will enhance public trust by combating tax evasion and avoidance, CARF will enhance public trust in the financial system and public institutions, promoting stability and development in the financial market.
In conclusion, the OECD and the Global Forum aim to leverage the experience gained from CRS and apply similar mechanisms to drive the implementation of CARF. The Global Forum also shows special attention to developing countries, ensuring that they benefit from CARF implementation and do not become tax havens. It is evident that countries around the world will collaborate more closely in addressing the global and anonymous challenges posed by crypto-assets tax regulation. CARF is expected to enhance global tax transparency, reduce tax evasion, and strengthen institutional trust and global consensus.
