The OECD's Common Reporting Standard (the CRS) was adopted in 2014 and was designed to promote tax transparency with respect to financial accounts held abroad. Generally, it requires financial institutions to identify customers who appear to be tax resident outside the country where they hold their accounts and financial products, and annually report account information to its local tax authority. That local tax authority may then share that information with the tax authority where the customer is resident.
Unlike traditional financial products, crypto-assets can be transferred and held without the intervention of traditional financial institutions, such as banks, and without any central administrator having full visibility on either the transactions carried out or on crypto-asset holdings. Consequently, crypto-assets are not comprehensively covered by the CRS. Further, the crypto-market has given rise to a new collection of intermediaries that include exchanges, operators of crypto-ATMs, crypto-brokers/dealers, and wallet-providers, many of which currently remain unregulated. The consequence of this is that tax authorities do not have adequate visibility on taxable crypto-transactions, thereby inhibiting their attempts to curb tax evasion.
On 10 October 2022, the OECD published its Crypto-Asset Reporting Framework (the CARF), as prepared on a mandate from the G20. It is a global tax transparency framework for the automatic exchange of information between countries on crypto-assets.
Subject to certain carve-outs, the CARF will target any digital representation of value that relies on a cryptographically secured distribution ledger, or a similar technology, to validate and secure transactions. The CARF will require the automatic exchange of crypto-asset transactions with a taxpayer's jurisdiction of residence on an annual basis and in a standardised manner, much like the CRS. Relevant intermediaries would be obliged to report under the CARF.
The next stage of the process will see the OECD taking forward its work on the legal and operational instruments, which is expected to involve a framework of bilateral or multilateral agreements to facilitate the international exchange of information collected under the CARF. This is intended to ensure effective and widespread implementation of the CARF, including commencement of the exchanges.
It is imperative for intermediaries to be prepared ahead of any new obligations that they might be expected to meet. Our team can help assess the impact on different groups that may be affected.