Ben Rosen, Partner
Amidst the ever-expanding adoption of blockchain technology and the cryptoassets that arise from it, the calls for regulation are increasing in volume.
The Organisation for Economic Co-Operation and Development (the OECD):
- has confirmed that it intends to tackle the threat that cryptoassets pose to the progress made on global tax transparency;
- proposes a ‘new global tax transparency framework and an automatic exchange of tax information on transactions in cryptoassets in a standardised manner’; and
- calls this the Crypto-Asset Reporting Framework or CARF.
Why now and what does the CARF aim to achieve?
There is an acknowledgement of the revolutionary potential of blockchain technology and the ‘decentralised’ digital attributes of many cryptoassets. The impact of that acknowledgement heralds a wider acceptance of this technology at governmental and institutional level, on a global scale. However, perhaps to the chagrin of crypto purists and decentralisation ideologues, the CARF aims to offset the erosion that cryptoassets could and have already caused to the gains made in global tax transparency. This is a clear admission that these assets have the potential to circumvent and avoid ‘traditional financial intermediaries or central administrators’ and that the OECD deems this unacceptable.
The CARF recognises that this new industry, unlike more traditional financial intermediaries, has its own set of intermediaries that are not currently subject to any or sufficient regulatory reporting, including the OECD’s own Common Reporting Standard (the CRS). Just as the CRS operates to provide transparency in cross-jurisdictional transactions and minimise the non-payment of tax, the CARF intends to achieve the same outcomes.
How will the CARF achieve this?
The CARF will comprise the following three building blocks:
- CARF rules and guidance to be transposed into domestic law to collect information from resident cryptoasset intermediaries;
- a framework of bilateral or multilateral competent authority agreements for the automatic exchange of information; and
- technical solutions to support this exchange of information.
The detail of the first block has been released and it will focus on the:
- type of cryptoassets to be covered (which is to be widely drafted and includes new innovations);
- intermediaries’ obligations to maintain data collection and reporting;
- transactions subject to reporting including the information to be reported; and
- due diligence procedures to identify cryptoasset users and the relevant tax jurisdictions for reporting purposes.
The OECD’s announcement of the CARF is an urgent and clear message to intermediaries and crypto investors alike, that the legal framework is looking to integrate an industry that has, so far, avoided any serious regulatory oversight.
This is a cross-border challenge and cooperation is certainly needed if the crypto sector is to stop eroding efforts at improving global tax transparency. Integration into the legal framework is a positive sign of this digital technology and acceptance that it is here to stay. It may also provide investors with greater security in the knowledge that the platform with which they are dealing is legitimate.
We, at Quastels, are well placed to guide you through the latest legal developments relating to cryptoassets and would be delighted to advise further.
If you would like to speak to our team, please contact our Partner, Ben Rosen, at email@example.com.
This article does not constitute legal or tax advice and may not be appropriate to your individual circumstances.