**Coinworld News Report:**
This article will interpret the key points of the document and the future trends of global tax information exchange.
Written by: TaxDAO
1. **Introduction**
In July 2024, the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) presented a document titled “Bringing Tax Transparency to Crypto-Assets – An Update” to the Organisation for Economic Co-operation and Development (OECD) and the G20, which details the latest developments in global tax transparency for crypto assets (i.e., the Crypto-Asset Reporting Framework, CARF).
The OECD and G20 are utilizing the Crypto-Asset Reporting Framework (CARF) to promote automatic tax information exchange worldwide, ensuring transparency in crypto asset transactions and reducing the risks of tax evasion and avoidance. Currently, 58 OECD member countries have announced plans to implement CARF by the end of 2027. The TaxDAO research team interprets the key points of this document as well as future trends in global tax information exchange.
2. **Main Content of the Document**
2.1 **Overview of the Document and Key Timelines for CARF Implementation**
“Bringing Tax Transparency to Crypto-Assets – An Update” first introduces the background and purpose of the report, discusses the definitions, uses, and developments of crypto assets, and emphasizes the challenges of tax transparency and information exchange associated with them. It then calls for global new standards for crypto assets, detailing the G20’s efforts to promote tax transparency for crypto assets and the collaborative development of CARF by the OECD and G20 countries. Following this, the document explains the implementation of CARF, providing a detailed account of its framework, including domestic legislative frameworks, international legal frameworks, technical frameworks, administrative frameworks, and standards for confidentiality and data protection, while discussing how to leverage the Global Forum’s experience in implementing the Common Reporting Standard (CRS) to execute CARF. Finally, it outlines the steps taken by the Global Forum to ensure broad implementation of CARF and summarizes the progress made, emphasizing its potential benefits for tax transparency and information exchange.
The goal of the Global Forum is to ensure that most relevant jurisdictions begin automatic information exchange for crypto assets (AEOI) by 2027. As of the report’s release, 58 countries and regions have publicly announced their support for commencing CARF-based crypto asset information exchange before 2027, including 10 developing countries.
To ensure that countries can start CARF information exchange on time in 2027, the Global Forum has set a critical mid-term objective of completing the commitment process regarding CARF before the 2024 Global Forum plenary meeting (expected to be held in November 2024). This means that by the end of 2024, the Global Forum will identify most of the jurisdictions relevant to implementing CARF and encourage these countries to formulate and pass domestic laws for timely initiation of crypto tax information exchange in 2027. Additionally, developing countries may require technical preparations, and the CARF working group is discussing whether to grant certain countries limited flexibility to delay the implementation of CARF when necessary.
2.2 **How the Global Forum Will Advance CARF Implementation**
2.2.1 **Introduction to CARF**
CARF aims to establish a unified tax information exchange framework to address the regulatory issues surrounding crypto asset taxation and provide tax authorities with more third-party data on taxpayers’ crypto asset activities. CARF is based on the CRS and was completed by the OECD in 2023. The framework requires RCASPs (Reporting Crypto Asset Service Providers) to comply with detailed due diligence requirements to determine the information that must be reported and to ensure that this information can be accurately and timely reported to tax authorities. CARF consists of the following rules and notes: 1. Scope covering crypto assets; 2. Entities and individuals subject to data collection and reporting requirements; 3. Transactions that need to be reported along with related information; 4. Due diligence procedures for identifying crypto asset users and controllers as well as relevant tax jurisdictions for reporting and exchange purposes.
Tax authorities in each jurisdiction will, upon receiving reports from RCASPs, organize information exchanges and flows within the CARF framework to globally regulate crypto assets and ensure tax transparency.
2.2.2 **Current Status of CARF Implementation**
At the invitation of the G20, the Global Forum established a CARF working group responsible for formulating the commitment process for CARF by the end of 2024 to ensure its broad implementation globally. According to the plan, participating countries should begin CARF information exchange in 2027. We believe that the Global Forum’s goal is to ensure that all relevant jurisdictions start implementing CARF at relatively uniform times to prevent any jurisdiction from becoming a tax “loophole.”
To support CARF implementation, the Global Forum is developing the necessary technical framework, 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 Legal Implementation of CARF**
There are significant synergies between CRS and CARF, and the Global Forum plans to leverage these synergies to expedite CARF’s rollout. To implement CARF, governments need to establish domestic legislative frameworks requiring RCASPs to execute due diligence procedures and report information; establish international legal frameworks for the international exchange of reported information; and develop the necessary technical framework to receive information from RCASPs and exchange it internationally. Additionally, countries should meet expected standards related to confidentiality and data protection to ensure that exchanged information remains secure and is handled appropriately.
2.3 **The Essence of CARF is to Extend the CRS’s Automatic Information Exchange to the Realm of Crypto Assets**
2.3.1 **Introduction to AEOI**
Automatic information exchange (AEOI) is an international tax cooperation mechanism aimed at enhancing tax transparency and preventing cross-border tax evasion and avoidance. This system achieves its goals by requiring financial institutions to report financial account information of their non-resident account holders and automatically exchange this information with the tax authorities of the countries where these account holders reside. At 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 clients through financial institutions, which is then automatically exchanged among participating countries.
2.3.2 **How AEOI is Extended to the Realm of Crypto Assets**
As mentioned earlier, CARF applies the automatic information exchange mechanism of the CRS to crypto asset service providers (RCASPs), requiring them to report the crypto asset information of their non-resident clients and automatically exchange this information with the tax authorities of the countries where these clients reside, thereby enhancing tax transparency in the crypto asset domain and preventing tax evasion and avoidance.
2.3.3 **Specific Requirements of AEOI**
The specific requirements of AEOI include: account due diligence, wherein financial institutions must conduct due diligence on their accounts to determine whether the account holders are non-resident taxpayers and collect necessary information for exchange. Information reporting, where financial institutions must report relevant information to their domestic tax authorities in the specified format and timeline. This information is then exchanged by tax authorities according to international agreements. Data protection and privacy, where countries must ensure the security and privacy of data during the exchange process to prevent unauthorized disclosure to third parties. Finally, regarding technical standards, to enhance the efficiency and accuracy of information exchange, countries participating in AEOI typically must adopt uniform technical standards and data formats.
For financial institutions or taxpayers that do not comply with AEOI requirements, relevant countries may implement various punitive measures, including but not limited to fines imposed on non-compliant financial institutions or taxpayers to compensate for the losses to national tax revenues caused by tax evasion or avoidance. In severe cases of violation, relevant countries may resort to measures such as revoking business licenses or imposing restrictions on entry and exit. However, these punitive measures are specifically outlined by the domestic laws of relevant countries, leading to international variations.
3. **Potential Impact of CARF Implementation**
Firstly, enhancing tax transparency. The implementation of CARF will significantly increase tax transparency in the crypto asset domain, enabling tax authorities to more accurately understand taxpayers’ crypto asset holdings and related income, thereby effectively combating tax evasion and avoidance.
Secondly, promoting fair tax competition. By implementing a unified crypto asset reporting standard globally, CARF helps establish a fair competitive market environment and prevents certain jurisdictions from becoming tax shelters.
Thirdly, increasing government revenue. Enhanced tax transparency and promotion of fair tax competition will assist governments in increasing tax revenues, providing more funding support for public services.
Fourthly, enhancing public trust. By combating tax evasion and avoidance, CARF helps to bolster public trust in the financial system and public institutions, promoting stability and development in financial markets.
Overall, the OECD and the Global Forum hope to leverage their experiences with the CRS to promote the implementation of CARF, while also showing particular concern for developing countries, ensuring they benefit from CARF’s implementation without becoming “tax havens.” It is evident that, in response to the global and anonymous challenges posed by crypto assets, countries worldwide will increasingly collaborate to address the tax regulatory issues associated with crypto assets. CARF is expected to enhance global tax transparency, reduce tax evasion, and strengthen institutional mutual trust and global consensus in the future.
**References**
[1]. Feng Jing. International Tax Governance of Crypto Assets: Origins, Status, and Prospects [J]. Tax Research, 2022, (09): 119-126.
[2]. PwC. 2024. “2024 Global Crypto Asset Tax Survey Report”
[3]. TaxDAO. 2023. “Introducing CARF: The Unique International Crypto Asset Tax Regulatory Framework”
[4]. An official website of the European Union. 2024. “EU Defines New Rules on Crypto-Asset Information Exchange for Tax Purposes”
[5]. PwC. 2022. “OECD is Expanding CRS to Cryptos and Presenting a New Crypto-Asset Reporting Framework”
[6]. OECD. 2024. “OECD Report to G20 Finance Ministers and Central Bank Governors”
