The OECD has developed the Crypto-Asset Reporting Framework (CARF), designed to ensure the collection and automatic exchange of information on transactions in Relevant Crypto-Assets. This framework is an important milestone for the enhancement of transparency of crypto transactions and holding of crypto assets. The CARF consists of rules and commentary that can be transposed into domestic law to collect information from Reporting Crypto-Asset Service Providers with a relevant nexus to the jurisdiction implementing the CARF.
The OECD is also working on an implementation package to ensure the consistent domestic and international application of the CARF. The implementation package, which will form an integral part of the CARF.
The Crypto-Asset Reporting Framework is very wide in scope to include the reporting and holding of most types of crypto assets by taxpayers. When this framework is implemented by the respective jurisdiction, crypto services providers based in such jurisdiction shall be obliged to have strong systems and controls which enables them to report detailed information on their clients as well as the crypto assets which they are transacting on behalf of their clients.
Crypto Assets included within the scope of the Exchange of Information
The proposed definition of Crypto-Assets which will be deemed to fall under the radar of CARF focuses on the use of cryptographically secured distributed ledger technology.
The framework adopts a very wide definition of Crypto-Asset” which is defined as digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions. “Similar technology” has been included in the definition to include new technological developments that are expected to emerge in the future and that operate in a functionally similar manner to Crypto-Assets and raise similar tax risks.
The framework also targets 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 (“NFTs”).
Crypto assets which cannot be used for payment and or investment purposes will be exempted from exchange of information. Similarly Central Bank digital currencies and certain Specified Electronic Money Products will be excluded from the CARF as these will be included under the Common Reporting Standards (CRS).
Service providers being targeted by CARF
All entities and individuals that as a business provide services effectuating exchange transactions in reportable / relevant crypto assets on behalf of customers will fall within the scope of the reporting framework. These will not be limited to just exchange platforms but also includes service providers who provide services such as brokers, dealers and operators of crypto asset ATMs.
Reportable Transactions
The following transactions are subject to reporting under CARF:
- Exchanges between Relevant Crypto-Assets and Fiat Currencies
- Exchanges between one or more forms of Relevant Crypto-Assets
- Transfers (including Reportable Retail Payment Transactions) of Relevant Crypto-Assets
Reporting Crypto-Asset Service Providers entities shall be obliged to distinguish between outward and inward transactions as well as distinguish between Crypto-Asset-to-Crypto-Asset and Crypto-Asset-to-Fiat Currency transactions.
Crypto-Asset Service Providers shall also be obliged to categorize the type of transfer by transfer type. CARF also requires reporting on the number of units and the total value of transfers of relevant Crypto-Assets effectuated by a Reporting Crypto-Asset Service Provider on behalf of a crypto asset user.
Reporting on crypto users and crypto assets
Crypto service providers shall be required to report on an annual basis. The information on reportable users must include:
- In the case of an Individual: Name, address, date and place of birth, jurisdiction of residence and tax identification number (TIN)
- In the case of an Entity: name, address, jurisdiction of residence and TIN of the entity as well as the name address, jurisdiction of residence, TIN and date and place of birth of each individual which has been identified as a Controlling Person of the entity
In general, for each type of crypto asset, the service provider shall report all the transactions done during the reporting year. The following details shall be reported on the transactions:
- The full name of the type of Relevant Crypto-Asset
- The aggregate gross amount paid, the aggregate number of units and the number of Relevant Transactions in respect of acquisitions and disposals against Fiat Currency
- The aggregate fair market value, the aggregate number of units and the number of Relevant Transactions in respect of acquisitions and disposals against other Relevant Crypto-Assets
- The aggregate fair market value, the aggregate number of units and the number of Reportable Retail Payment Transactions;
- The aggregate fair market value, the aggregate number of units and the number of Relevant Transactions, and subdivided by Transfer type where known by the Reporting Crypto- Asset Service Provider, in respect of Transfers to the Reportable User
The reporting requirements under the proposed EU DAC8 are expected to be aligned with CARF.
FF International provides a spectrum of tax, advisory and compliance services. We can assist to implement effective processes to ensure DAC8 / CARF risks are identified and managed effectively. For more information on CARF and DAC8 kindly contact:
Franco Falzon C.P.A. LL.M (Managing Director) or Olga Ivanova LL.M (Corporate & Legal)
E: info@ffinternational.com.mt
T: +356 2010 7771 (office)
M: +356 9989 5679 (mobile)
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