The Crypto-Asset Reporting Framework (“CARF”), is the OECD’s flagship tax transparency standard to help combat criminal activity using crypto-assets to evade taxation. The key aspects of the CARF were covered in the article “Update: OECD Crypto-Asset Reporting Framework” published in Brass Tax on November 29, 2022.
As a brief reminder, the CARF is expected to facilitate the tax transparency of transactions relating to crypto-assets through building on the existing infrastructure that tax authorities around the world use to share tax information with each other, namely the Common Reporting Standard (“CRS”).
The implementation of the CARF will mean that crypto-asset platforms will need to commence collecting and sharing taxpayer information with taxation authorities (which such platforms currently do not do). The result of that change should ensure that tax authorities can exchange information to enforce compliance with applicable tax laws which relate to crypto-assets as a class. The CARF is expected to take effect from 2027, giving stakeholders time to prepare for the changes in reporting arrangements.
The next step forward on the road in the world’s tax authorities implementing the CARF is for the OECD, along with those tax authorities, to progress legal and operational instruments that will facilitate the international exchange of information collected under CARF. To that end, in an historic joint statement with 48 countries (including the United States) published on 10 November 2023, the United Kingdom has spearheaded a first of its kind global commitment to:
1) welcome the international standard on the automatic exchange of information between tax authorities for transactions relating to crypto-assets, as developed by the CARF;
2) swiftly transpose the CARF into domestic law and activate exchange agreements in time for information exchanges to commence in 2027; and
3) where the jurisdictions are signatory jurisdictions to the CRS, implement crypto-asset related amendments to the CRS standard, as agreed by the OECD earlier this year.
Promptly after this, on 29 November 2023, HMRC launched an online voluntary disclosure facility specifically aimed at encouraging tax payers to disclose any unpaid tax on crypto assets.
Future financial services regulatory framework for crypto-assets consultation
The UK’s commitment to becoming a global hub for crypto-asset technologies can be further evidenced by the publication of the public consultation on the future financial services regulatory framework for crypto-assets in February earlier this year.
The purpose of the consultation was to gather evidence and responses from industry experts and other interested parties to ensure that the regulatory framework implemented in the UK provides: (1) the clarity needed for crypto platforms to invest and innovate; and (2) the protections necessary for customers to confidently continue using these technologies, in each case within the UK.
The response to the consultation, published in October 2023, also touches on the government’s broader views on “surveillance and information sharing.” The response notes that existing market abuse regimes and supporting infrastructure for traditional financial services asset classes were developed over many decades. Therefore, expecting the same level of sophistication and coordination on day one of the crypto-assets regime is unrealistic.
It is likely that a staggered implementation of domestic data sharing obligations will take place in order to maintain a fair and orderly crypto-asset trading environment within the United Kingdom. It will be interesting, therefore, to see how and to what extent the CARF is implemented into domestic legislation by the 2027 timeline and whether any such automatic exchange of information regime will be effective.
