On 22 March 2022 the OECD published a consultation document in relation to a global tax transparency framework for reporting crypto-assets and proposed changes to the common reporting framework for automatic exchange of financial account information.

With the continuing development of new technologies and products that are changing the financial markets, more needs to be done to ensure transparency. Crypto-assets can be transferred and held without the traditional interaction with financial intermediaries; and there is no central administrator overseeing the transactions carried out. Other digital money products provide electronic storage and payment functions similar to a traditional bank account and can be offered by organisations that are not covered by the Common Reporting Standard (CRS).

Owing to blockchain technology, crypto-assets can be issued, recorded, transferred and stored in a decentralised manner and the new intermediaries include crypto-asset exchanges and wallet providers.

The OECD is therefore looking at ways to modernise the tax transparency instruments available to tax administrations. A new global tax transparency framework, known as the Crypto-Asset Reporting Framework (CARF) will cover the automatic exchange of tax information on transactions in crypto-assets. The OECD is also amending the CRS to bring the new financial assets and intermediaries within its scope. The OECD has also launched the first comprehensive review of the CRS.

Transparency

The crypto-asset market does not use traditional financial intermediaries, which are the typical information providers in third-party tax reporting regimes like the CRS. The new types of intermediaries are frequently not subject to tax reporting requirements in relation to their clients. Also, as individuals can hold crypto-assets in wallets that are unaffiliated with any service provider and transfer the assets across borders, there is a risk that these assets will be used for illicit activities or used to evade tax obligations.

Scope of crypto-assets to be covered

The CARF rules set out the scope of crypto-assets to be covered; the intermediaries subject to data collection and reporting requirements; the transactions subject to reporting and the information to be reported; and the relevant due diligence procedures for identification of users and the relevant tax jurisdictions for reporting.

The definition of crypto-assets refers to the use of cryptographically secured distributed ledger technology and similar technology, so the definition can also cover future asset classes of a functionally similar nature. The definition covers assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries. This definition is intended to ensure that assets covered under the new tax reporting framework also fall within the scope of the financial action task force (FATF) recommendations, so the due diligence requirements can build on the existing obligations in relation to anti-money laundering (AML) and know-your-client (KYC).

Reporting requirements

The reporting requirements under the CARF cover exchanges between crypto-assets and fiat currencies; exchanges between one or more forms of crypto-assets; reportable retail payment transactions; and transfers of crypto-assets. Transactions should be reported in aggregate for each type of crypto-asset and separately for outward and inward transactions.

The CARF sets out due diligence procedures that should be carried out by the reporting crypto-asset service providers to correctly identify the crypto-asset users, the relevant tax jurisdictions for reporting; and the information that should be reported under the CARF.

The OECD is inviting comments from interested parties by 29 April 2022 and a public consultation meeting will be held in May 2022.