OECD issues new Crypto-Asset Reporting Framework

October 2022

In brief

The OECD on 10 October published a much-anticipated two-part document — the Crypto-Asset Reporting Framework (CARF) and Amendments to the Common Reporting Standard (CRS) — setting forth a global tax transparency compliance framework with model rules for the automatic reporting and exchange of taxpayer information between countries relating to financial accounts and crypto-assets. The CARF, which responds to a G20 request, will be presented to G20 Finance Ministers and Central Bank Governors at their October 12-13 meeting in Washington, DC.

The CRS, first adopted in 2014, was designed as a global framework for reporting, obtaining, and automatically exchanging information relating to financial accounts on an annual basis. However, the rapid adoption of the use of crypto-assets for a wide range of investments and financial intermediaries means that crypto-assets and related transactions are not comprehensively covered by the CRS and that tax administrators may not have adequate visibility into when taxpayers hold or engage in transactions involving crypto-assets.

The OECD amended the CRS and developed the stand-alone CARF as a complementary compliance framework intended to address this deficiency. Similar to the CRS, the CARF contains (1) model rules that can be enacted as domestic legislation and (2) related commentary to support legislative implementation. The implementation timelines for both the CARF and the CRS amendments will be determined at a future date in an effort to avoid overlapping rules and the potential for duplicate reporting.

Action items: Groups that may be affected by the CARF or amendments to the CRS should consider the following steps to assess the impact:

  • Conduct an analysis of any entities in their group that may have reporting requirements, identify relevant reporting jurisdictions, and monitor legislative developments as local CARF legislation is adopted;
  • Review user and investor onboarding processes so that the necessary know-your-customer (KYC) information is gathered and an appropriate governance and due diligence framework is in place; and
  • Understand how the transaction information is gathered and analyze whether systems are in place to gather, report, and maintain the information.

Crypto-Asset Reporting Framework

The CARF is intended to achieve transparency with respect to crypto-asset transactions through the annual, automatic exchange of crypto-asset transaction information among the participating jurisdictions whose tax residents hold or engage in crypto transactions. “Crypto-assets” for purposes of the CARF refers to a digital representation of value that relies on a cryptographically secured ledger or similar technology to validate and secure transactions. Crypto-assets are assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries, including stablecoins, derivatives issued in the form of a crypto-asset, and certain non-fungible tokens.

The CARF covers (1) crypto-assets subject to reporting, (2) intermediaries and services providers subject to tax information reporting, (3) transactions (and related information) subject to reporting, and (4) due diligence procedures to identify crypto-asset users (directly or indirectly) and to determine the relevant tax jurisdictions for reporting and exchange purposes.

The three types of transactions subject to reporting are (1) exchanges between relevant crypto-assets and fiat currencies, (2) exchanges between one or more forms of relevant crypto-assets, and (3) transfers (including retail payment transactions) of relevant crypto-assets (subject to a de minimis limit).

Observation: The scope of transactions subject to reporting is expected to evolve, and it is anticipated that the OECD will continue to develop guidance — in particular as it relates to reportable retail payment transactions and crypto-assets that can or cannot be used for payment or investment purposes.

The CARF builds on global Financial Action Task Force (FATF) rules developed to prevent money laundering, terrorist financing, and the financing of proliferation of weapons of mass destruction. The scope of crypto-assets covered under the CARF is expected to be consistent with the scope of crypto-assets covered by the FATF Recommendations. The CARF reporting requirements apply to entities or individuals in the business of effectuating crypto-asset transactions, since they are considered to be in the best position to determine the value of crypto-asset transactions. These intermediaries and other service providers are expected to fall under FATF’s definition of virtual asset service provider.

The OECD continues to work on the legal and operational instruments to (1) achieve the CARF’s effective and widespread implementation, and (2) facilitate its international collection and exchange of information.

Observation: The forthcoming CARF implementation package is expected to consist of a framework of bilateral or multilateral competent authority agreements, IT solutions to support the exchange of information, and further mechanisms to exchange the additional CRS information.

CRS amendments

The OECD also released amendments to the CRS intended to expand its scope and modernize its operation to comprehensively cover digital financial products taking into account feedback from implementing jurisdictions and financial institutions with reporting obligations. This feedback focused on expanded definitions, improved tax due diligence procedures, and more detailed reporting obligations.

Key changes to the CRS relate to the expanded definition of financial assets and investment entities intended to ensure that derivatives that reference crypto-assets and that are held in custodial accounts and investment entities are subject to CRS reporting requirements. There are adjustments to ‘day two’ due diligence procedures requiring the determination of tax residence on ‘day one’ and the potential to utilize Government Verification Services as a source of identity and tax residency. In relation to expanded reporting obligations, future CRS reports are expected to include whether the account is a preexisting account or a new account, whether a valid self-certification has been obtained, and the type of financial account and the role of controlling persons.

Contact us

Mazhar Wani

Partner, FinTech Tax Leader, PwC US

Philip Greenfield

Global Tax Policy Services, PwC US

Rebecca Lee

Principal, International Tax Services, PwC US

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