The Organization for Economic Cooperation and Development (OECD) has proposed a framework for the reporting of cryptocurrency assets in an effort to streamline global tax compliance.
The Crypto-Assets Reporting Framework (CARF) will bolster the Organization for Economic Co-operation and Development’s existing Common Reporting Standards (CRS). Established in 2014 to combat offshore tax evasion, CRS requires financial institutions to identify non-resident account holders and report specific financial information to the local tax authority. This local authority is then required to correspond this information to the tax regulator of the account holder’s residential country. CARF is specifically designed to address crypto assets in the context of this local tax reporting.
According to the OECD, cryptocurrencies pose a pair of challenges when it comes to global tax administration. Because most cryptocurrencies operate on a decentralized network, transactions do not pass through a centralized financial authority required to follow CRS. Consequently, new financial intermediaries have sprung up, such as cryptocurrency exchanges, which are still only subject to limited OECD reporting.
Under CARF, new reporting requirements will be expected for a wide variety of crypto assets, which are defined as, “those assets that can be held and transferred in a decentralized manner, without the intervention of traditional financial intermediaries, including stablecoins, derivatives issued in the form of a Crypto-Asset and certain non-fungible tokens (NFTs).” This definition is sufficiently broad enough to capture any new asset classes that could emerge, which operate similarly to current crypto assets.
Exchange expectations
CARF will also target centralized cryptocurrency exchanges, decentralized cryptocurrency exchanges, broker dealers and even ATMs. Under the due diligence requirement, these intermediaries will be required to collect personal information from their users, in addition to information about their tax residence. Any information regarding non-resident users must be reported to the country of that user’s residence. Meanwhile, crypto related transactions subject to CARF will include crypto-to-fiat trades, crypto-to-crypto trades, transfers of crypto assets and retail payments.
In the case of decentralized exchanges, it remains unclear who will bear the responsibility of implementing CARF, as peer-to-peer transactions naturally lack an intermediary. The OECD has earlier stated that it expected to introduce a standardized framework for crypto financial reporting in 2021.
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Source: https://beincrypto.com/oecd-proposes-crypto-assets-reporting-framework/