OECD Countries to Implement the Crypto Asset Reporting Framework
The Organisation for Economic Co-operation and Development (OECD) has introduced to its member nations CARF - an all-encompassing tax regime designed specifically for the crypto sector. It seems that cryptocurrencies are no longer serving as a "silent harbor" for anarchists who prefer not to share their hard-earned money with the government.
The Organisation for Economic Co-operation and Development (OECD), stationed in Paris, was formed by world leaders following the Second World War. It became the nucleus of coordination and intellectual advancement, the hub for information on Europe's rebirth projects under the Marshall Plan. As of 2023, 38 countries, a majority of them being EU members, have joined the OECD. Even Ukraine submitted an application for membership in July 2022. At present, the OECD's efforts are centered on combating tax evasion, corruption, money laundering, and the likes.
In June 2023, the OECD modernized the International Standards for Automatic Exchange of Information in Tax Matters. Given the global expansion of the crypto sector, OECD member nations were suggested to adopt the Crypto-asset reporting framework or CARF. Corresponding revisions were also made to the Common Reporting Standard (CRS), which has been adopted and used in OECD countries since 2014.
Let's begin with a brief introduction to CRS. This standard outlines how financial institutions and government bodies should facilitate an automatic exchange of tax information among OECD members. CRS gathers all personal data about a bank account holder (pertaining to both individuals and legal entities), details about the account itself (transaction activities, year-end balance), and so forth. It is this practice that has now been decided to be extended to crypto assets.
Our new international tax transparency standards cover the updated Common Reporting Standard and the new reporting framework for crypto assets, further strengthening efforts to tackle tax evasion in a digitalised & globalized world economywas tweeted by the OECD Secretary-General Mathias Cormann
OECD Introduces CARF Source: Twitter
Indeed, the decision-makers have determined that the crypto sphere lacks both transparency and accountability. They're aiming to decisively tackle tax evasion on cryptocurrency transactions. CARF, the fresh tax landscape specific to crypto, consists of three primary components:
- First, the guidelines and advice for the gathering of tax-related data, such as the identities of those partaking in crypto dealings and the scale of these transactions. By meticulously gathering data, tax authorities are hoping to gain a more explicit understanding of a specific nation's crypto ecosystem and its effect on public treasury inflows.
- Second, a novel regulatory body will be responsible for supervising and assuring compliance with CARF's conditions. Ideally, the establishment of this dedicated body should simplify the process of abiding by tax laws within the crypto industry.
- Lastly, an electronic information exchange, enabled by the introduction of a specialized format known as eXtensible Markup Language (XML). XML is designed to facilitate the quick and secure sharing of tax data among different jurisdictions. The expectation is that eXtensible Markup Language will help standardize tax reporting for the crypto industry on a global scale.
In addition to CARF, amendments to the CRS (Common Reporting Standard) are strengthening local tax authorities' control over bank accounts subject to other countries' jurisdiction. Interestingly, the revised CRS includes provisions related to Central Bank Digital Currencies (CBDCs) and introduces the term "Specified Electronic Money Product," a concept that represents digital versions of fiat currencies.
OECD documents also indicate that modern tax authorities will be combing through virtually everything: crypto wallets, crypto exchanges, Distributed Ledger Technology (DLT), and so on. After implementing CARF, crypto businesses will face standardized requirements for providing transaction information to local tax authorities. Such details will include the type of crypto assets, transaction amounts, dates, and information about all parties involved in the transactions.
