17/02/25
CARF Implementation: Ensuring Transparency For Tax Purposes In The Crypto-Assets Sector
The recent rise in the use of crypto-assets poses new tax evasion risks, including to the success of global tax transparency and exchange of information efforts to date. This is not least because crypto-assets are not currently covered by the standard on the Automatic Exchange of Information (AEOI) on financial accounts held abroad between tax authorities (generally referred to as the Common Reporting Standard, or CRS), which undermines the ability of tax authorities to identify their taxpayers’ ownership and use of crypto-assets abroad. In response, the OECD worked with G20 countries to develop the Crypto-Asset Reporting Framework (CARF), which extends AEOI to the crypto-asset sector. The CARF has been strongly endorsed by the G20, which invited the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) to work to ensure the widespread implementation of the CARF by relevant jurisdictions around the globe. This was strongly welcomed by the Global Forum, which has already made significant progress in this work, and which is set to deliver its CARF commitment process during its 2024 Plenary meeting from 26 to 28 November in Asunción, Paraguay.
This article: (i) provides further background on the developments that have resulted in the demands for international action to address the risks associated with the growing use of crypto-assets from a tax transparency perspective, (ii) recalls the details of the resulting development of the CARF, and (iii) outlines the work of the Global Forum to ensure the widespread implementation of the CARF by relevant jurisdictions, both to address the risks identified based on a global level playing field and to assist jurisdictions in mobilising domestic revenues by tackling offshore tax evasion through the use of crypto-assets.
Background
Crypto-assets, such as cryptocurrencies and cryptography-based tokens, are a relatively new method to store wealth and to carry out financial transactions, allowing for such activities to be carried out in a decentralised manner, outside the traditional financial sector (ie banks and other financial institutions). The use of crypto-assets to hold and transfer value has grown rapidly over recent years, catalysing new ways of doing business and innovation in financial markets.
However, the decentralised nature of crypto-assets and the removal of the need to engage with the more traditional financial sector has provided new opportunities for taxpayers (including individuals and entities) to hide their income and wealth from the view of tax and other law enforcement authorities. While the traditional financial sector has historically been a focus of regulatory oversight and reporting requirements, including for tax purposes, crypto-assets and the intermediaries that facilitate their use have only recently become the focus of such regulation (eg see the work of the Financial Action Task Force (FATF) in relation to combatting money laundering[1]), and are typically not yet subject to tax reporting requirements.
The risks posed by the increasing use of crypto-assets, including their potential use to evade and avoid tax obligations, are particularly acute when the crypto-assets are held or transacted offshore, such as through offshore intermediaries. This is similar to the situation that led to the creation of AEOI between tax authorities in relation to financial accounts held abroad, commonly referred to as the Common Reporting Standard or CRS, developed by the OECD working with G20 countries in 2014. In this respect, significant progress has been made on AEOI over recent years, which has been key to supporting jurisdictions in tackling tax evasion and avoidance, and mobilising domestic resources. In 2023, for instance, 108 jurisdictions exchanged information under the CRS relating to about 135 million financial accounts and covering financial assets worth almost EUR 12 trillion, with developing countries receiving about one third of the information exchanged. However, a move from the use of the more traditional financial sector towards the use of crypto-assets, and/or intermediaries not covered by existing AEOI frameworks, threatens to undermine the benefits secured in recent years through the widespread implementation of the CRS.
Development Of The CARF – Responding To A Political Call To Deliver Tax Transparency To Crypto-assets
Recognising this risk to the global level playing field with respect to transparency and exchange of information for tax purposes, the G20 led a political drive for action to deliver global tax transparency to the crypto-asset sector, with an initial request in 2021 by the G20 Finance Ministers for further work to be done to address the tax evasion and avoidance risks posed by crypto-assets.[2]
In response, in 2022, the OECD, working with G20 countries, completed the core rules for a new framework for AEOI in relation to the crypto-asset sector (ie the CARF). The CARF builds on the frameworks established under the CRS and essentially extends the framework to new intermediaries (crypto-asset service providers) in relation to the transactions in crypto-assets that they facilitate for non-resident crypto-asset users.
The development of the CARF was welcomed by G20 Leaders in 2022, alongside an invitation to the Global Forum to build on its commitment and monitoring processes to ensure the widespread implementation of the CARF. The Global Forum welcomed this request and immediately started taking actions to ensure it was ready to act quickly, upon the finalisation of the CARF.[3]
In June 2023, the OECD finalised its work to produce the CARF.[4] The G20 Leaders called for the Global Forum to ensure its swift and widespread implementation, and the Global Forum constituted its CARF Group in September 2023.
Overview Of The CARF
The CARF builds closely on the established frameworks for AEOI, more specifically the frameworks put in place to implement the CRS, under which 108 jurisdictions are already exchanging information. This has involved all jurisdictions putting in place the necessary legal, technical and administrative frameworks. The widespread delivery of the CRS is the result of the Global Forum’s CRS commitment and monitoring processes, which is why the Global Forum is very well placed to ensure the widespread implementation of the CARF, in accordance with the G20’s request.
There are significant synergies between the CRS and the CARF, which can be leveraged to quickly ensure the widespread implementation of the CARF by relevant jurisdictions. Specifically, to implement the CARF, jurisdictions will need to:
- Put in place a domestic legislative framework to require Reporting Crypto-Asset Service Providers (RCASPs) to carry out the due diligence procedures and report the information. It should be noted there is a close alignment in the required due diligence rules between the CARF and the CRS (not least as some entities may be reporting information under the CRS and the CARF), so the experience gained by CRS jurisdictions can be extensively leveraged.
- Put in place an international legal framework to provide for the international exchange of the information reported. Again, the approach used for the CRS can be used for the CARF, as one option for establishing the legal basis can be provided through the Convention on Mutual Administrative Assistance in Tax Matters (MAAC), which already has 147 signatories, with the details of the exchanges being set out in the associated CARF Multilateral Competent Authority Agreement (CARF MCAA). In addition, as also provided for in the implementation of the CRS, bilateral agreements are also possible.
- Put in place the necessary technical framework to receive the information from RCASPs and exchange it with its peers using the CARF XML Schema.[5] In addition, the Common Transmission System (CTS), put in place by the OECD and managed by the Global Forum, which is currently used by all CRS jurisdictions to exchange data, can also be used for the CARF exchanges.
- Implement the necessary administrative frameworks to ensure compliance by RCASPs. While the CARF covers new intermediaries and new information that they must report, the strategies and approaches taken in a CRS context can provide a useful starting point.
- Meet the expected standards in relation to confidentiality and data safeguards, to ensure the information exchanged is kept secure and treated appropriately. Here, the Global Forum already has an established programme to support jurisdictions in putting in place the expected frameworks and in assessing their implementation in practice.
The Global Forum’s Work To Ensure Widespread Implementation
As noted previously, immediately upon the finalisation of the CARF, in September 2023 the Global Forum established its ‘CARF Group’ to develop proposals on how to ensure the widespread implementation of the CARF by relevant jurisdictions. The CARF Group was established as an “open” group, without limits on its membership, thus allowing any Global Forum member to join. The group currently has 51 members, including 10 developing jurisdictions.
The CARF Group has taken forward the work in several key areas, with a view to delivering the Global Forum’s commitment process by the Global Forum’s Plenary meeting in November 2024. Relying on the Global Forum’s CRS commitment process as a starting point to developing the CARF commitment process, the CARF Group has focused its work around the following three areas:
- The components of the commitment process, including a common timeline
The CARF Group has reflected on a common timeline to implement the CARF and commence exchanges. In line with this, the CARF Group has taken note of a jurisdiction-led initiative supporting the rapid implementation of the CARF, consisting of a ‘joint statement’[6] in which jurisdictions announced their intention “to work towards swiftly transposing the CARF into domestic law and activating exchange agreements in time for exchanges to commence by 2027, subject to national legislative procedures as applicable.” 59 Global Forum member jurisdictions have adhered to this statement, including 10 developing jurisdictions. The CARF Group took note of this intention and discussed the need to provide some limited flexibility around this date, where it is needed.
- Identifying relevant jurisdictions
A critical topic to ensure a level playing field, which was noted in the call from the G20, is to identify the “relevant jurisdictions”, which are jurisdictions that should implement the CARF to ensure it is effective. These are essentially jurisdictions that have a relevant crypto-asset sector that should be brought into the CARF to ensure that there is complete coverage, without gaps that could be exploited by intermediaries or investors to circumvent the reporting. This was therefore a topic of early focus of the CARF Group. It was also recognised that the crypto-asset market can change rapidly and therefore any process to identify relevant jurisdictions should be frequent and reactive. In identifying jurisdictions with relevant crypto-asset sectors, the CARF Group also noted the usefulness of the work done by the FATF to identify jurisdictions hosting material Virtual Asset Service Providers[7] (which are also RCASPs).
- Disseminating knowledge and providing support
As the CARF is still a relatively recent development, the Global Forum wants to ensure that knowledge is disseminated across its membership to facilitate jurisdictions working together to find common solutions to common challenges, and to provide support where needed, including to ensure that developing countries can benefit from this new form of AEOI.
Disseminating knowledge and providing support has been a key objective of the Global Forum from the outset, not least with the creation of the CARF Group as an ‘open’ group that any Global Forum member can join, at any time, provided it is interested in delivering the work of the CARF Group. The CARF Group is also developing guidance materials for Global Forum members so that they are aware what implementing the CARF consists of and how they can leverage the implementation of the CRS.
The provision of guidance and support will continue to be a key area of focus for the Global Forum in the coming months and years, as jurisdictions begin implementing the CARF.
A key milestone with respect to the Global Forum’s work to ensure the widespread implementation of the CARF by relevant jurisdictions will be the results of the Global Forum's CARF Commitment Process, designed to ensure the proper coverage of the CARF based on a level playing field, and to promote the benefits on a widespread basis. Furthermore, commitments should be made to implement the CARF according to specific and coordinated timelines. While this will be a significant milestone, it will also represent the start of a process for the Global Forum. Ensuring the CARF is an effective tool to address the growing risks to transparency and exchange of information for tax purposes stemming from the rapid growth of the crypto-asset market will depend on: (i) ensuring proper coverage of the CARF, including monitoring global developments in the location of relevant crypto-asset service providers, and (ii) the timely and effective delivery of the commitments made to implement the CARF. This way, tax authorities will have access to information that is relevant to ensure tax compliance and to ensure the fairness of the tax systems.
[1] Virtual Assets: Targeted Update on Implementation of the FATF Standards on VAs and VASPs.
[2] Italian G20 Presidency, Communiqué of the Second G20 Finance Ministers and Central Bank Governors meeting, 7 April 2021.
[3] 2022 Global Forum Plenary Meeting, Statement of Outcomes.
[4] International Standards for Automatic Exchange of Information in Tax Matters: Crypto-Asset Reporting Framework and 2023 update to the Common Reporting Standard.
[5] Crypto-Asset Reporting Framework XML Schema User Guide for Tax Administrations.
[6] Joint Statement on the Implementation of the Crypto-Asset Reporting Framework.
[7] Status of implementation of Recommendation 15 by FATF Members and Jurisdictions with Materially Important VASP Activity.
Zayda Manatta
Zayda is Head of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes. She previously served as Senior Economist at the Fiscal Affairs Department of the International Monetary Fund; and was Deputy General Commissioner of the Brazil Revenue Administration. Her specialties include Tax, Transparency, International Tax and Tax Administration.
