In the growing world of crypto assets, the digital currencies like Bitcoin, Ethereum, and stablecoins have gained widespread adoption. As to enhance transparency and tackle tax evasion, OECD has developed Crypto-Asset Reporting Framework (CARF) in July 2021 with the main objective to improve international tax cooperation and combat unfair tax practices.
In August 2022, the OECD approved the Crypto-Asset Reporting Framework (CARF) which provides for the reporting of tax information on transactions in Crypto-Assets in a standardised manner, with a view to automatically exchanging such information.
Types of Reportable Crypto-Assets: The CARF applies to a wide range of crypto-assets, including:
- Virtual currencies - (e.g., Bitcoin, Ethereum).
- Stablecoins - (e.g., Tether, USD Coin).
- Central bank digital currencies (CBDCs) - when used for investment or transaction purposes.
- Other digital assets that may be traded or transferred on digital platforms.
1. Reporting Requirements for Crypto-Asset Service Providers (CASPs): The CARF establishes specific reporting requirements for crypto-asset service providers (CASPs) that facilitate transactions in crypto-assets, such as exchanges, custodians, and wallet providers to report certain information to tax authorities.
2. Transaction Reporting: Crypto-asset service providers must report detailed information on transactions such as
- as information about both the sender and recipient of crypto-asset transfers,
- transaction date,
- value of transaction in fiat currency.
3. Cross-Border Reporting: The framework encourages the exchange of information among tax authorities in different countries to prevent tax evasion and ensure compliance with tax obligations.
4. Consistency with the Common Reporting Standard (CRS): The CARF is designed to be aligned with the OECD's Common Reporting Standard (CRS), which facilitates the automatic exchange of financial account information between countries.
5. Privacy and Data Protection: While reporting obligations are imposed on crypto-asset service providers, the CARF framework also includes measures to protect personal information and ensure that only relevant data is shared with tax authorities.
6. Focus on Prevention of Money Laundering and Terrorist Financing: Alongside tax compliance, the CARF also aims to help authorities prevent illegal activities, including money laundering (AML) and terrorist financing (CFT).
Impact on Taxpayers and Investors:
- Increased Scrutiny: Taxpayers involved in crypto-assets should be aware that tax authorities may have access to detailed information about their crypto transactions, which could impact their tax obligations.
- Tax Reporting: Investors and traders in crypto-assets may need to provide additional documentation and records to tax authorities, particularly if they engage in large or cross-border transactions.
CRS (Common Reporting Standard) Schema
The OECD working with G20 countries has developed a common standard on reporting, due diligence and exchange of financial account information. As per this common standard, information is obtained from reporting financial institutions and is automatically exchanged with exchange partners, as appropriate, on an annual basis financial information with respect to all reportable accounts. This reporting and exchange of information is done through an XML schema and related instructions. The CRS XML Schema is designed to be used for the automatic exchange of financial account information between Competent Authorities (“CAs”). In addition, the CRS could also be used for domestic reporting by Financial Institutions (“FIs”) to domestic tax authorities under the CRS.
The user guide issued by CRS is divided into logical sections based on the schema and provides information on specific data elements and any attributes that describe that data element. The CRS Schema Information sections are:
I. Message Header with the sender, recipient, message type, reporting period
II. Controlling Person or Account Holder details if an individual
III. Account Holder if an entity
IV. CRS Body; Reporting FI and Reporting Group and Account details.
About the author
Head of Tax & Accounting - Kryptos
