The OECD has released a public consultation document concerning a new global tax transparency framework to provide for the reporting and exchange of information with respect to crypto-assets, as well as proposed amendments to the Common Reporting Standard (CRS) for the automatic exchange of financial account information between countries. The purpose of the consultation is to inform policymakers’ decisions on the possible adoption of any such framework and its related design components.
In recent years, individuals have rapidly adopted the use of crypto-assets for a range of investment and financial activities. However, unlike traditional financial products, crypto-assets can be transferred and held without the intervention of traditional financial intermediaries and without any central administrator having full visibility on either the transactions carried out or crypto-asset holdings. Therefore, crypto-assets could be exploited to undermine existing international tax transparency initiatives, such as the CRS.
Against this background, the G20 has asked the OECD to develop a framework for the automatic exchange of information on crypto-assets. This new framework provides for the collection and exchange of tax-relevant information between tax administrations, with respect to persons engaging in certain transactions in crypto-assets. It covers crypto-assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries, as well as asset classes relying on similar technology that may emerge in the future. Individuals and entities that, as a business, provide services to exchange crypto-assets against other crypto-assets, or for fiat currencies, must apply the due diligence procedures to identify their customers, and then report the aggregate values of the exchanges and transfers for such customers on an annual basis.
Alongside the Crypto-Asset Reporting Framework (CARF), the OECD has also developed proposals as part of the first comprehensive review of the CRS, with the aim of further improving the operation of the CRS, based on the experience gained by governments and business over the past seven years since its adoption. The proposal extends the scope of the CRS to cover electronic money products and Central Bank Digital Currencies. In light of the development of the CARF, the proposals also include changes to cover indirect investments in crypto-assets through Investment Entities and derivatives. At the same time, the proposal contains new provisions to ensure an efficient interaction between the CRS and the CARF, in particular, to limit instances of duplicative reporting. Finally, the amended CRS seeks to improve the due diligence procedures and reporting outcomes, with a view to increasing the usability of CRS information for tax administrations and limiting burdens on Financial Institutions, where possible.