Title: Tax Transparency in Crypto-Assets – An Update
Introduction
In July 2024, the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) reported to the Organisation for Economic Co-operation and Development (OECD) and the G20 on the document entitled Bringing Tax Transparency to Crypto-Assets – An Update, which details the latest developments in the global construction of the framework for reporting crypto-assets (the Crypto-Asset Reporting Framework, CARF).
The OECD and G20 are using the Crypto-Asset Reporting Framework (CARF) to promote automatic exchange of tax information globally, ensuring transparency in crypto-asset transactions and reducing the risk of tax evasion and avoidance. Currently, 58 OECD member countries have announced their intention to complete the implementation of CARF by the end of 2027. The TaxDAO research team has interpreted this document and the future trends in global tax information exchange.
Main Content of the Document
1. Overview of the Document and Key Time Points for CARF Implementation
Bringing Tax Transparency to Crypto-Assets – An Update first introduces the background and purpose of the report, discussing the definition, uses, and development of crypto-assets, and emphasizing the challenges of tax transparency and information exchange regarding crypto-assets. It then calls for global new standards for crypto-assets, detailing the action taken by the G20 to promote tax transparency for crypto-assets and discussing the process of OECD and G20 cooperation in developing CARF. It also explains the implementation of CARF, detailing the framework, including domestic legislative frameworks, international legal frameworks, technical frameworks, administrative frameworks, and confidentiality and data protection standards, and discusses how the Global Forum is using its experience in implementing the Common Reporting Standard (CRS) to implement CARF. It then describes the work undertaken by the Global Forum to ensure the widespread implementation of CARF, summarizing the progress made by the Global Forum in implementing CARF and 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 crypto-asset information by 2027. As of the release of the report, 58 countries and regions have publicly announced their support for the commencement of crypto-asset information exchange based on CARF by 2027, including 10 developing countries.
To ensure that countries can start exchanging CARF information by 2027, the Global Forum has set a key midterm target to complete the commitment process for CARF by the time of the 2024 full Global Forum meeting (expected to be held in November 2024). This means that by the end of 2024, the Global Forum will identify the majority of jurisdictions that will implement CARF and promote these countries to enact domestic laws to start exchanging crypto tax information by 2027. In addition, developing countries may need technical preparation, and the CARF working group is also discussing whether to give certain countries limited flexibility to delay the implementation of CARF if necessary.
2. How the Global Forum Will Promote the Implementation of CARF
2.1 Introduction to CARF
CARF aims to establish a unified framework for tax information exchange, address regulatory issues for crypto-assets, and provide tax authorities with more third-party data on taxpayers and crypto asset activities. CARF is based on CRS and was completed by the OECD in 2023. The framework requires crypto-asset service providers to comply with detailed due diligence requirements to determine the information that must be reported and ensure that this information is reported accurately and in a timely manner to tax authorities. CARF consists of rules and commentary covering 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 and controllers, as well as the relevant tax jurisdictions for reporting and exchange purposes.
Tax authorities in various jurisdictions, under the CARF framework, will exchange information and flow of information with other tax authorities on a global scale to regulate crypto-assets, ensuring tax transparency.
2.2 Current Status of CARF Implementation
At the invitation of the G20, the Global Forum established a CARF working group to develop the commitment process for CARF by the end of 2024 to ensure its widespread implementation globally. According to the plan, participating countries should begin the exchange of CARF information by 2027. It is believed that the goal of the Global Forum is to ensure that all relevant jurisdictions implement CARF in a relatively unified manner to prevent any jurisdiction from becoming a tax evasion “loophole”.
In support of 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.
2.3 Domestic Implementation of CARF
There are significant synergies between CRS and CARF, and the Global Forum plans to leverage these synergies to implement CARF quickly. To implement CARF, governments need to establish domestic legislative frameworks and require crypto-asset service providers to conduct due diligence procedures and report information; establish international legal frameworks, prescribing the international exchange of reported information; establish necessary technical frameworks to receive and exchange information from crypto-asset service providers; in addition, countries must meet expected standards related to confidentiality and data protection to ensure the security and proper handling of exchanged information.
3. Potential Impacts of CARF Implementation
Firstly, it will enhance tax transparency. The implementation of CARF will significantly enhance tax transparency in the crypto-assets sector, allowing tax authorities to more accurately understand the holdings and related income of taxpayers in crypto-assets, effectively combating tax evasion and avoidance.
Secondly, it will promote fair tax competition. By implementing uniform reporting standards for crypto-assets globally, CARF will help establish a fair competitive market environment, preventing certain jurisdictions from becoming tax evasion and avoidance havens.
Thirdly, it will increase government revenue. Enhancing tax transparency and promoting fair tax competition will help governments increase tax revenue, providing more funding for public services.
Lastly, it will enhance public trust. By combating tax evasion and avoidance, CARF will help enhance public trust in the financial system and public institutions, promoting the stability and development of financial markets.
In conclusion, the OECD and the Global Forum hope to draw on the experience of CRS and promote the implementation of CARF based on the mechanisms of CRS. At the same time, the Global Forum has shown special concern for developing countries, aiming to ensure that they also benefit from the implementation of CARF, while also seeking to prevent them from becoming “tax havens”. It is evident that in response to the global and anonymous challenges of crypto-assets, countries around the world will work more closely together in addressing the regulatory issues of crypto-asset taxation. CARF is expected to enhance global tax transparency in the future, reduce tax evasion, and strengthen institutional trust and global consensus.