The Organization for Economic Co-operation and Development (OECD) has submitted a Crypto-Asset Reporting Framework (CARF) to the G20 to increase global transparency in the reporting of tax information on transactions in crypto-assets in a standardised manner. The mechanism will facilitate automatic exchange of information among jurisdictions on an annual basis.
Among others, G20 includes the US, UK, India, China, South Korea and Brazil. In April 2021, the G20 asked the OECD with developing a method for automating cryptocurrency tax reporting between nations. G20 finance ministers and central bank governors will review the OECD’s 100-page CARF this Wednesday-Thursday in Washington.
The OECD framework contains the rules and commentary of the CARF and a set of amendments to the Common Reporting Standard (CRS), as approved by the OECD Committee on Fiscal Affairs in August 2022.
“Regulators and tax authorities around the world have been grappling with the burning question of tracking, regulating and taxing crypto transactions given the proliferation and increasing dispersion of this form of exchange. While some forward-looking countries have spotted an opportunity to attract crypto entrepreneurs to set up a base by providing an enabling environment for crypto operations, other countries have been more concerned about the potential misuse of crypto assets to fuel money laundering and prohibited end uses,” said Sudhir Kapadia, Tax Partner, EY India. “In this context, the OECD announcement of a new transparency framework for crypto transactions is a welcome move as it will enable timely tracking of information and ensure that regulatory/tax compliance is duly adhered to across jurisdictions to create a level playing field,” Kapadia added.
The virtual digital asset (VDA) industry has seen rapid growth in India despite ambiguities around regulations and various other challenges. In the Budget for FY23, the government has imposed a 1% tax deducted at source on all VDA transactions. Besides TDS, the government mandated tax on any income from the transfer of VDAs at 30%, with no deduction and set off of losses, which may adversely affect the sector.
The CARF consists of rules which set out the scope of crypto-assets to be covered, the entities and individuals subject to data collection and reporting requirements, the transactions subject to reporting, as well as the information to be reported in respect of such transactions. The due diligence procedures to identify crypto-asset users and controlling persons, and to determine the relevant tax jurisdictions for reporting and exchange purposes.
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The proposed definition of crypto-assets under the CARF focuses on the use of cryptographically secured distributed ledger technology, as this is a distinguishing factor underpinning the creation, holding and transferability of crypto-assets. The definition also includes a reference to “similar technology” to ensure it can include new technological developments that emerge in the future and that operate in a functionally similar manner to crypto-assets and raise similar tax risks. The definition of Crypto-Assets thereby targets those assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries, including stablecoins, derivatives issued in the form of a crypto-asset and certain non-fungible tokens (NFTs).