Latest Progress in Global Cryptocurrency Tax Transparency Construction

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

The OECD and G20 are leveraging CARF to promote automatic exchange of tax information globally, ensuring the transparency of encryption asset transactions and reducing the risks of tax evasion and avoidance. Currently, 58 OECD member countries have announced that they will complete the implementation of CARF by the end of 2027.

Main Content of the Report

The report first introduces the definition, uses, and development of encryption assets, emphasizing the challenges faced by encryption assets in terms of tax transparency and information exchange. Subsequently, the report elaborates on the implementation framework of CARF, including domestic legislative framework, international legal framework, technical framework, administrative framework, and confidentiality and data protection standards. The report also discusses how to leverage the experiences of 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 information exchange of encryption assets by 2027. To achieve this goal, the Global Forum has set a key mid-term target of completing the CARF commitment process by the end of 2024. This means that by the end of 2024, the Global Forum will identify most of the relevant jurisdictions implementing CARF and encourage these countries to formulate and pass related domestic laws.

CARF Implementation Progress

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

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.

Governments of various countries need to establish domestic legislative frameworks requiring relevant agencies to conduct due diligence procedures and report information; establish international legal frameworks that regulate the international exchange of reported information; establish necessary technical frameworks to receive and exchange information; in addition, countries should also meet expected standards related to confidentiality and data protection to ensure that exchanged information remains secure and is handled appropriately.

CARF and Automatic Information Exchange System

The CARF essentially extends the automatic information exchange determined by the CRS to the field of encryption assets. Automatic information exchange is an international tax cooperation mechanism aimed at increasing tax transparency and preventing cross-border tax evasion and avoidance. The CARF applies this mechanism to encryption asset service providers, requiring them to report the encryption asset information of non-resident clients and automatically exchange this information with the tax authorities of the countries where these clients are located.

The specific requirements for automatic information exchange include account due diligence, information reporting, data protection and privacy, and technical standards. Countries may impose various penalties on institutions or taxpayers that do not comply with the requirements, including fines, revocation of business licenses, and restrictions on entry and exit.

Potential Impact of CARF Implementation

The implementation of CARF is expected to have the following impacts:

1. Improve tax transparency so that tax authorities can more accurately understand taxpayers' encryption asset holdings and related income.

2. Promote tax revenue fair competition and prevent certain jurisdictions from becoming safe havens for tax evasion and avoidance.

3. Increase government fiscal revenue to provide more funding support for public services.

4. Enhance public trust in the financial system and public institutions, and promote the stability and development of 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 participation of developing countries, ensuring that they can benefit from the implementation of the CARF while preventing them from becoming "tax havens." It is foreseeable that in response to the global and anonymous challenges posed by encryption assets, countries will collaborate more closely when facing the issue of tax regulation for encryption assets. The CARF is expected to enhance global tax transparency, reduce tax evasion, and strengthen institutional mutual trust and global consensus in the future.