It’s a new world for crypto reporting

by Arthur · October 18, 2022

The release by the Organization for Economic Co-operation and Development on October 10, 2022 of a new global framework for tax transparency for cryptoassets shows that the world is moving quickly towards recognizing and standardizing the process.

“Draft regulations were proposed in March and they already have a final draft [the Crypto Asset Reporting Framework],” noted Erin Fennimore, head of tax and information reporting at TaxBit.

“Ready or not, this is what tax looks like when it’s moving at the speed of light,” said Tony Tuths, digital assets practice leader and principal in alternative investments, tax, at Big Four firm KPMG.

“The G20 is fully expected to support the recommendations,” he said. “Of course, each country will still need to implement the recommendations in its own way. Nevertheless, these rules are focused on the exchanges and wallet providers, and seek to impose tax reporting obligations on these entities as they act as on-ramps and exits to the blockchain.”

The process started in 2017, when the OECD adopted a common reporting standard that provides for the exchange of information between members. Countries that adopted the standard would automatically report and receive tax-related information, but the standard did not specifically address virtual assets.

Then in March 2022, the OECD released a public consultation document outlining the proposed global tax framework for cryptoassets. CARF – Crypto Asset Reporting Framework – is the result.

“CARF covers a wide range of digital assets, including cryptocurrency, stablecoins, tokenized financial instruments and certain non-fungible tokens,” Fenimore said. “Reporting will include customer-level activity for the purchase, sale, trade and transfer of digital assets within reach. While reporting will be on an aggregate basis, transaction-level tracking, with fair market value, will be required.”

In addition to CARF, the OECD also issued changes to the common reporting standards. “This is an important milestone in the global pursuit of regulatory clarity for digital assets,” Fennimore observed.

“CARF and the amendments to the CRS offer a framework specifically related to crypto transactions and the parties that facilitate them,” she said.

CARF broadly defines cryptoassets that will be covered by the new requirements as a “digital representation of value that relies on a cryptographically secured distributed ledger or similar technology to validate and secure transactions.” By including a reference to “similar technology,” the OECD intends to include new assets that may emerge as the digital asset ecosystem evolves, according to Fennimore.

Three categories of assets are excluded from CARF reporting: central bank digital currencies, specified electronic money products, (both already included in the CRS area), and cryptoassets that cannot be used for payment or investment purposes.

Those required to collect and report information under CARF are called CASPs, or Crypto Asset Service Providers. A CASP refers to any person or entity that, as a business, offers a service that executes exchange transactions for or on behalf of customers. For the purposes of this definition, “customer” includes users of services of reporting CASPs.

It is currently unclear which countries will officially adopt CARF, according to Fennimore. “The EU is expected to adopt CARF later this year.”

Since the United States is not part of the CRS network, it will not automatically receive information about individuals operating outside the country. However, it has its own information reporting and receives similar information under the Foreign Account Tax Compliance Act, which requires foreign financial institutions and certain other non-financial foreign entities to report foreign assets held by their US account holders or subject to withholding. on withholding payments. The law also requires US citizens to report, depending on their value, their foreign financial accounts.

According to Justin Woodward, co-founder and president of TaxBit, the OECD’s new CARF will “drive the mainstream adoption of digital assets by establishing a consistent global regulatory tax framework. The framework is a recognition by the OECD that cryptocurrencies, tokenized assets, NFTs, decentralized finance and other new technologies are beginning to be integrated into the world’s financial system.”