It's a new world for cryptocurrency reporting

It’s a new world for cryptocurrency reporting

The October 10 2022 OECD release of a new global tax transparency framework for crypto assets shows that the world is rapidly moving towards recognition and standardization of the process.

“Draft regulations were proposed in March, and they already have a final draft of [the Crypto Asset Reporting Framework]Erin Fenimore, Head of Tax and Information Reporting at TaxBit.

“Ready or not, this is what a tax looks like when it moves at the speed of light,” said Tony Tooths, lead digital asset practice and director of alternative investments and taxation at Big Four KPMG.

“The recommendations are expected to be fully endorsed by the G-20,” he said. “Of course, each country will still need to implement the recommendations in its own way. However, these rules focus on exchanges and wallet providers, and seek to impose tax reporting obligations on these entities as they act as ramps and ramps to the blockchain.”

The process began in 2017, when the Organization for Economic Co-operation and Development adopted a common reporting standard that provided for the exchange of information between members. Countries that have adopted the standard will automatically report and receive tax-related information, but the standard has not specifically addressed virtual assets.

Then, in March 2022, the OECD released a public consultation document outlining the proposed global tax framework for crypto assets. CARV – Crypto Asset Reporting Framework – is the result.

“CARF covers a wide range of digital assets, including cryptocurrencies, stablecoins, tokenized financial instruments, and some non-fungible tokens,” Fenimore said. “Reporting will include client-level activity to buy, sell, trade and transfer digital assets in scale. Also, while reporting will be on an aggregate basis, tracking at the transaction level, with fair market value, will be required.”

In addition to the CARF, the OECD has also issued amendments to the Common Reporting Standards. “This is a major milestone in the global quest for regulatory clarity for digital assets,” Fenimore noted.

“CARF and the changes made to CRS provide a framework specifically related to cryptocurrency transactions and the parties that facilitate them,” she said.

Arina Habich / Arinahabich – stock.adobe.com

CARF broadly defines the crypto assets to be covered by the new requirements as “a digital representation of value that relies on a distributed ledger secured with cryptography or similar technology to verify and secure transactions.” By including a reference to “similar technology,” the OECD intends to include new assets that may arise as the digital asset ecosystem evolves, according to Fenimore.

Three classes of assets are excluded from the CARF reports: central bank digital currencies, specific electronic money products (both already included in the scope of the CRS), and crypto assets that cannot be used for payment or investment purposes.

Those who are required to collect and report information under the CARF are called CASPs, or crypto asset service providers. CASP refers to any individual or entity that, as a business, provides a service that leads to the execution of exchange transactions for, or on behalf of, customers. For the purposes of this definition, “client” includes users of CASPs reporting services.

According to Fenimore, it is currently unclear which countries will officially adopt CARF. “CARF is expected to be adopted by the European Union later this year.”

Because the United States is not part of the CRS network, you will not automatically receive information about people working outside the country. However, it has its own information reports and receives similar information under the Foreign Account Tax Compliance Act, which requires foreign financial institutions and certain other foreign non-financial entities to report foreign assets held by account holders in the United States or subject to detention. on payments withheld. The law also requires US citizens to report, depending on the value, their foreign financial accounts.

According to Justin Woodward, Co-Founder and Head of TaxBit, the new OECD CARF “will drive mainstream adoption of digital assets by creating a consistent global tax framework. The framework is an OECD acknowledgment that cryptocurrencies, tokenized assets, NFTs, and decentralized finance and other emerging technologies in becoming an integral part of the global financial system.”

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