The Organisation for Economic Cooperation and Development (OECD) has released the rules and regulations of its new tax transparency framework for crypto assets known as the Crypto-Asset Reporting Framework (CARF), according to a release put out by the group. The body first published the consultation paper in March this year followed by stakeholder consultations.
You can read our summary of the paper here.
The framework ensures the facilitation of automatic exchange of tax information annually on crypto transactions in a standardised fashion, the release stated. The rules can be “transposed” into domestic law to collect information from service providers to ascertain tax liability, the OECD said in its statement.
What is OECD: The OECD is one of the most prominent international bodies in the world consisting of more than 35 high-income nations as its members. The group’s prominence stems from the fact that its recommendations are a reference point for countries looking to shape their economic policies.
The OECD explained that crypto assets can be transferred and held without interacting with traditional financial intermediaries which makes it difficult to check for irregularities thereby necessitating a framework to fill lacunae in the process.
What happens next: The CARF was presented to G20 Finance Ministers and Central Bank Governors for discussion at their meeting on October 12, 2022, in Washington D.C. Moreover, the body wrote that they were on an implementation package to ensure “consistent domestic and international application and effective implementation of the CARF”.
The implementation package will consist of the following:
- Bilateral or multilateral competent authority agreements to deal with the information collected under the CARF
- IT solutions to support the exchange of information
- Coordinated implementation timelines
Why it matters: The group observed that the emergence of crypto assets has reduced the ability of tax regulators to ensure tax liabilities are reported in a transparent fashion. The absence of a framework poses a significant risk which threatens to erode recent gains in global tax transparency.
You can read the document in its entirety here.
FREE READ of the day by MediaNama: Click here to sign-up for our free-read of the day newsletter delivered daily before 9 AM in your inbox.
Here are some of the key highlights
The CARF will cover any digital representation of value that relies on a cryptographically-secure distributed ledger or a similar technology to validate and secure transactions.
Obligations of Crypto-Asset Service Providers (CASP)
The term refers to any individual or entity that provides a service facilitating exchange transactions on behalf of customers as a business by making available a trading platform.
- They are subject to reporting and due diligence requirements if:
- They qualify as an entity or individual resident for tax purposes in the jurisdiction where they are based
- They are an entity that is incorporated or organised under the laws of a country and has an obligation to file tax returns with the tax authorities
- They are an entity managed in the country which had adopted CARF
- They are an entity or individual that has a regular place of business.
Reporting requirements
The service providers must report the following information with regard to their users:
- Personal details
- Name,
- Address,
- Jurisdiction of residence,
- Tax Identification Number,
- Date and place of birth.
- Company details
- Name,
- Address,
- Identifying number.
- Transaction details within a specified reporting period
- Name of the type of relevant crypto asset
- The aggregate gross amount paid, the aggregate number of units and the number of transactions in respect of acquisitions against fiat currency and crypto assets
- The aggregate gross amount received, the aggregate number of units and the number of Relevant Transactions in respect of disposals against fiat currency and crypto assets
- Aggregate fair market value, the aggregate number of units and the number of retail payment transactions
- Aggregate fair market value, as well as the aggregate number of units of transfers made by users to wallet addresses not known by the CASP
Due diligence procedures
For individual users of crypto assets
- Obtain self-certification: Every CASP has been directed to obtain a self-certification that allows them to determine the user’s residence for tax purposes and confirm the reasonableness of such self-certification based on the obtained information, including any documentation collected under AML/KYC procedures.
- All CASPs will have to obtain a valid self-certification or a reasonable explanation if the original is found to be incorrect or unreliable. The document is valid only if it is signed by the user.
- What will it contain: The certificate should contain the following—
- First and last name
- Residence address
- Jurisdiction(s) of residence for tax purposes
- TIN
- Date of birth
For entities using crypto assets
- Determine whether it is a reportable user: Even entities have to furnish self-certification that allows CASPs to determine their residence for tax purposes and confirm the reasonableness of such self-certification.
- A CASP may rely on the place of effective management or on the address of the office to determine the residence of the entity if it has no residence.
General due diligence requirements
- A CASP may rely on a third party to fulfil these obligations but such obligations will remain the responsibility of the CASP.
- All CASPs have been directed to maintain documentation and data for a period of not less than five years.
What about the Common Reporting Standard (CRS)?
The OECD also undertook a review of the CRS for the first time since 2014 and has been implemented in more than 100 jurisdictions across the world. It was amended to bring new financial assets, products and intermediaries within its scope because they are “potential alternatives to traditional financial products” the OECD said in its draft.
The CRS was designed for the purpose of tax transparency with respect to financial accounts held abroad and requires the collection and automatic exchange of information on the identity of account holders, as well as the balance and the income paid or credited to the accounts.
The review has resulted in new digital financial products being included in the scope of the CRS. It covers Specified Electronic Money Products and Central Bank Digital Currencies.
Understanding Specified Electronic Money Product: It covers digital representations of a single fiat currency that are issued for the purpose of making payment transactions. They are represented by a claim on the issuer denominated in the same fiat currency and should be accepted by a person other than the issuer. They are also redeemable at par for the same fiat currency upon request.
*Disclaimer: The post was updated on December 21, 2022, with a link to meet the obligations under Creative Commons.
This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.
Also read:
- Critics say OECD’s tax deal for big tech has no teeth. What does it mean for India?
- Summary: Crypto Asset Reporting Framework by OECD For Implementing Tax Regime
- What did crypto industry experts argue against OECD’s Crypto Asset Reporting Framework?
- Addressing the taxation and money laundering concerns associated with crypto-assets
