The OECD has delivered on 10 October 2022 a new global tax transparency framework to provide for the exchange of information with respect to crypto-assets (CARF). In parallel, the OECD has put forward a set of further amendments to the Common Reporting Standard (CRS) intended to comprehensively cover digital financial products and to enhance the reporting outcomes for participating jurisdictions. The new rules are necessary to ensure an effective level-playing field and to avoid loopholes in the field of tax transparency. Nevertheless, we are concerned about additional and potentially disproportionate burdens financial intermediaries might be obliged to carry.
Here is our preliminary analysis of the new rules and an overview of the next steps anticipated.
The new Crypto-Asset Reporting Framework (CARF)
The new framework responds to a G20 request inviting the OECD to develop a framework for the automatic exchange of information between countries on crypto-assets. The proposed rules come against the backdrop of a rapid adoption of the use of crypto-assets for a wide range of investment and financial uses. They are also based on the evidence that crypto-assets and related transactions are not comprehensively covered by the current framework for the automatic exchange of financial account information.
The new standard will provide for the automatic exchange of tax information on transactions in crypto-assets in a standardized manner with the jurisdictions of residence of the taxpayers. Intermediaries in scope would relate to service providers facilitating the exchange or transfer of crypto-assets in a cross-border context.
Amendments to the Common Reporting Standard (CRS)
New digital financial products are included in the scope of the CRS, as they may constitute a credible alternative to holding money or financial assets in an account that is currently subject to CRS reporting. In this regard, the CRS now covers e-money products and Central Bank digital currencies. Changes are also made to ensure that derivatives that reference crypto-assets and are held in an account that is subject to CRS reporting are covered by the CRS.
Additional amendments have also been made to enhance the reporting outcomes for participating jurisdictions, including through the introduction of more detailed reporting requirements, the strengthening of due diligence procedures and a couple of new, targeted exemptions.
Assessment and next steps
According to our preliminary analysis, the new crypto-asset reporting framework (CARF) should in the first instance apply to virtual asset service providers (VASP). The new rules are to our view necessary to ensure an effective level-playing field and to avoid loopholes in the field of tax transparency. By contrast, we are concerned that the contemplated extension of CRS reporting requirements and due diligence obligations would require additional and potentially disproportionate developments by financial intermediaries while bringing comparatively limited benefits for participating jurisdictions.
The new package was presented by the OECD to the G20 Finance Ministers and Central Bank Governors on 12-13 October 2022 and will need to be translated into legislation by participating countries. It shall be noted that the OECD is set to release an implementation package to that effect. In the meantime, the European Commission has announced its intention earlier this year to release a legislative proposal to amend the Directive on Administrative Cooperation (DAC 8) to take into account the new standards, presumably by the end of the first quarter of 2023.
A meeting of the ABBL working group dedicated to tax reporting will be convened in the coming weeks to discuss the package and to prioritise actions. Should you wish in the meantime to discuss the above, please do not hesitate to contact our tax expert Laétitia Carroz (firstname.lastname@example.org).
The full package released by the OECD can be accessed here.