Global Progress on the Transparency of Taxation for Encryption Assets

In July 2024, the Global Forum on Transparency and Exchange of Information for Tax Purposes submitted a report on the latest progress in building global encryption asset tax transparency to the Organisation for Economic Co-operation and Development (OECD) and G20. The report details the implementation of the Cryptocurrency Asset Reporting Framework (CARF).

The OECD and G20 are promoting the global automatic exchange of tax information through CARF to ensure the transparency of encryption asset transactions and reduce the risks of tax evasion and avoidance. Currently, 58 OECD member countries have committed to completing the implementation of CARF by the end of 2027.

Main Content of the Report

The report first introduces the background and purpose, discussing the definition, uses, and development of encryption assets, and emphasizes the challenges of encryption assets in terms of tax transparency and information exchange. Secondly, the report elaborates on the process of the G20 promoting actions for tax transparency of encryption assets, as well as the collaboration between the OECD and G20 countries in developing the CARF.

The report also provides a detailed overview of the implementation framework for CARF, including the domestic legislative framework, international legal framework, technical framework, administrative framework, and confidentiality and data protection standards. Additionally, the report discusses how to leverage the experiences from global forums in implementing the Common Reporting Standard (CRS) to advance the implementation of CARF.

The goal of the Global Forum is to ensure that the majority of relevant jurisdictions begin automatic exchange of information on encryption assets (AEOI) by 2027. To this end, the Global Forum has set a key mid-term objective of completing the commitment process regarding CARF before the plenary meeting scheduled for November 2024. This means that by the end of 2024, the Global Forum will identify the majority of relevant jurisdictions implementing CARF and encourage these countries to develop and pass domestic laws so that the exchange of encryption tax information can start on time in 2027.

CARF Implementation Promotion

The CARF aims to establish a unified framework for the exchange of tax information to address the regulatory issues of taxation on encryption assets and to provide tax authorities with more third-party data on taxpayers’ activities involving encryption assets. This framework requires cryptocurrency intermediaries (RCASPs) to comply with detailed due diligence requirements to identify the information that must be reported and to ensure that this information can be reported accurately and in a timely manner to the tax authorities.

Tax authorities in each jurisdiction, upon receiving information from the RCASP report, will organize information exchange and information flow with other tax authorities under the CARF framework in order to regulate encryption assets globally and ensure tax transparency.

To support the implementation of CARF, 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.

The Relationship Between CARF and AEOI

CARF essentially extends the automatic exchange of information determined by CRS to the field of encryption assets. Automatic exchange of information (AEOI) is an international tax cooperation mechanism aimed at enhancing tax transparency and preventing cross-border tax evasion and avoidance. At the core of AEOI is the Common Reporting Standard (CRS), which requires participating countries to collect and report financial account information of their non-resident clients to tax authorities through financial institutions, and then this information is automatically exchanged between participating countries.

CARF applies the CRS automatic information exchange mechanism to encryption asset service providers, requiring them to report non-resident clients' encryption asset information and automatically exchange this information with the tax authorities of the clients' countries, thereby increasing tax transparency in the encryption asset field and preventing tax evasion and tax avoidance.

Potential Impact of CARF Implementation

1. Improve tax transparency: The implementation of CARF will significantly enhance the tax transparency in the field of encryption assets, enabling tax authorities to more accurately understand taxpayers' holdings of encryption assets and related income.

2. Promoting fair competition in taxation: By implementing a unified encryption asset reporting standard globally, CARF helps to establish a fair competitive market environment and prevents certain jurisdictions from becoming havens for tax evasion and tax avoidance.

3. Increase government fiscal revenue: Improving tax transparency and promoting fair competition in taxation will help the government increase tax revenue, providing more funding support for public services.

4. Enhance public trust: By combating tax evasion and avoidance, CARF helps to enhance 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 draw on the experience of the CRS to promote the implementation of the CARF. At the same time, the Global Forum is particularly concerned about the needs of developing countries, ensuring that they can benefit from the implementation of the CARF while avoiding becoming "tax havens." It is foreseeable that, in response to the global and anonymous challenges of encryption assets, countries will cooperate more closely when facing tax regulation issues related to encryption assets. The CARF is expected to enhance global tax transparency, reduce tax evasion, and strengthen institutional trust and global consensus in the future.