Crypto-Asset Reporting Framework (CARF)

The Crypto-Asset Reporting Framework (CARF) is a key component of the International Standards for Automatic Exchange of Information in Tax Matters developed by OECD (Organisation for Economic Co-operation and Development) under a G20 mandate. It provides for the automatic exchange of tax-relevant information on crypto-assets and comes against the backdrop of the rapid adoption of the use of crypto-assets for a wide range of investment and financial uses.

Unlike traditional financial products, crypto-assets can be transferred and held without the intervention of traditional financial intermediaries, such as banks, and without any central administrator having full visibility on either the transactions carried out or on crypto-asset holdings.

WHO: A Reporting Crypto-Asset Service Provider in [Jurisdiction] must comply with the reporting and due diligence requirements if they are:

• An entity or individual tax resident in [Jurisdiction];
• An entity incorporated or organised under [Jurisdiction] laws, with legal personality or tax filing obligations in [Jurisdiction];
• An entity managed from [Jurisdiction];
• An entity or individual with a regular place of business in [Jurisdiction].

WHAT: Three types of Relevant Transactions are reportable under CARF:

• Exchanges between Relevant Crypto-Assets and Fiat Currencies;
• Exchanges between one or more forms of Relevant Crypto-Assets; and
• Transfers (including Reportable Retail Payment Transactions) of Relevant Crypto-Assets.

WHEN: By 2027.

WHERE: 58 jurisdictions including Singapore, Australia, United States, Malta, UK and Estonia have agreed to implement CARF.

HOW: An electronic format (XML schema) will be used to report CARF information to tax administrations for purposes of exchanging the CARF information.

RELEVANT CRYPTO-ASSETS: Cryptographically secured distributed ledger technology 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). This definition of Relevant Crypto-Assets means that in most cases, Relevant Crypto-Assets covered under CARF also fall within the scope of the FATF Recommendations.

CONCLUSION

CARF has the potential to bring substantial benefits to tax authorities from developing and developed jurisdictions alike. It helps secure tax revenues and tackle inequality by ensuring that taxpayers are properly declaring their crypto-asset holdings and the related income, as required by domestic tax laws.

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Chan Wei Xiang, CA (Singapore), is Chief Growth Officer, SOAS.