The Future of Crypto Taxation: Authorities to Exchange crypto data by 2027
The UK and 47 other countries have pledged to adopt the Crypto-Asset Reporting Framework (CARF) by 2027, marking a significant stride in global tax transparency. CARF, endorsed by the OECD in March 2023, focuses on sharing information between countries. The recent joint statement, issued on November 10th, highlights the commitment of these nations, including the UK, to follow this standard. Implementing CARF aims to strengthen tax compliance, , combat tax evasion, and bolster due diligence in Anti Money Laundering efforts.
The Common Reporting Standard (CRS)
The Common Reporting Standard (CRS) was created to enhance tax transparency regarding financial accounts held in foreign countries. Since its adoption in 2014, more than seven years have elapsed, during which over 100 jurisdictions have implemented the CRS. The financial markets have evolved significantly in this time, giving rise to new investment and payment practices. In collaboration with G20 countries, the OECD has conducted a comprehensive review of the CRS. This review engaged participating jurisdictions, financial institutions, and various stakeholders.
This review has led to two main outcomes:
- A fresh tax transparency framework enabling the standardized automatic exchange of tax information regarding transactions involving Crypto-Assets with the taxpayers’ residence jurisdictions. This framework is known as the “Crypto-Asset Reporting Framework” (CARF).
- A series of amendments to the CRS to accommodate the evolving financial landscape.
The Crypto-Asset Reporting Framework (CARF)
The Crypto-Asset Reporting Framework (CARF) was initiated in response to the G20’s directive to the OECD in April 2021. This framework, approved by the OECD in August 2022, establishes a standardized method for reporting tax information linked to Crypto-Asset transactions. CARF outlines the scope of relevant Crypto-Assets, identifies intermediaries and service providers subject to reporting, and integrates recent advancements in global anti-money laundering standards set by the Financial Action Task Force.
One critical challenge the OECD aims to tackle is the rise of Crypto-Assets, which can be transferred and held outside traditional financial systems without centralized oversight of transactions or asset locations. These developments have obscured tax authorities’ visibility into tax-related activities within this sector, complicating the verification of proper tax reporting and assessment. This poses a risk of undermining recent strides in global tax transparency.
To address these challenges specific to Crypto-Assets, the OECD, collaborating with G20 nations, devised CARF. It serves as a dedicated global tax transparency framework, facilitating the automatic annual exchange of tax-related information on Crypto-Asset transactions among the taxpayers’ residence jurisdictions.
CARF comprises rules and explanatory content that can be adopted into national laws to gather data from Reporting Crypto-Asset Service Providers having a substantial connection to jurisdictions implementing CARF. These rules focus on four main components:
- Defining the covered scope of Crypto-Assets.
- Specifying entities and individuals subject to data collection and reporting.
- Outlining the reportable transactions and required information.
Establishing due diligence procedures for identifying Crypto-Asset Users, Controlling Persons, and determining relevant tax jurisdictions for reporting and exchange.
