The Organization for Economic Cooperation and Development (OECD) is currently undertaking a public consultation ahead of the introduction of its new Crypto Asset Reporting Framework (CARF) legislation. When enacted, how will this legislation change the nature of crypto asset reporting?

According to Fabrice Chatelain – product director at Regnology – the crypto asset market has undergone a movement away from traditional financial intermediaries such as banks, which are commonly the information providers in third-party tax reporting regimes. He added that there are new intermediaries that very recently became liable for financial regulation, and which are not yet required to follow tax reporting requirements on behalf of their clients.

"It is possible to hold crypto assets in wallets that are not affiliated with any service provider, and these can thus be transferred across reporting jurisdictions generating the risk that they will be used for illegal or tax evasion activities. To date, the crypto asset sector has reduced the level of visibility tax authorities have on tax-relevant activities within this market. Naturally, this has increased the difficulty of determining whether the associated tax liabilities are being reported and assessed."


Regnology believes the CARF will help ensure that information on transactions carried out in crypto assets can be collected and exchanged. The company highlights the fact that the CARF is made up of three building blocks – the rules and commentary that can be incorporated into domestic legislation, bilateral/multilateral competent authority agreements for the automatic exchange of information under CARF and technical solutions to support this information exchange.

Chatelain adds that, “Once work on the rules and commentary for block 1 is complete, the second and third blocks will be further developed. Therefore, the new OECD crypto asset reporting framework targets those assets that are held and transferred in a decentralized manner and are not normally visible to traditional financial intermediaries, thus making them available for assessment and reporting.”

The OECD will require  intermediaries, meaning not only Crypto exchanges, but also other intermediaries providing exchange services such as brokers and dealers in Crypto-Assets, as well as operators of Crypto-Asset ATMs, to report four types of transactions: (a) exchanges between Crypto-Assets and Fiat Currencies; (b) exchanges between one or more forms of Crypto-Assets; (c) Transactions in which Crypto assets are  used as a means of retail payment; and (d) transfers of crypto assets.

Remonda Kirkterp-Møller – CEO of Muinmos – added, “imply put, the OECD wants to make crypto assets as close as possible to any other form of assets, in terms of tax reporting; and it wants to use the available entry points (where Crypto assets are purchased), passage points (where they’re exchanged) and exit (traded for goods or fiat money) points to do so."

Tax transparency impact

How will the new law impact tax transparency? In the eyes of Chatelain,  the OECD proposal will make intermediaries providing exchange transactions services in relevant crypto assets fully responsible for reporting under the CARF.

These types of intermediaries, he believes, “will have the most comprehensive access to crypto asset value and the relevant exchange transactions”, with such intermediaries also constituting obligated entities within the scope of the Financial Action Task Force (FATF). Therefore, intermediaries are in a position to collect and analyse customer financial documentation, and the OECD definition, Chatelain underlines, covers not only their exchanges but also those of other intermediaries offering such services – such as crypto asset brokers and dealers.

Taking into account the FATF´s updated guidance on virtual asset providers, the OECD has clarified the CARF scope of application to cover decentralised exchanges and finance. In terms of the reporting itself, Chatelain detailed that reporting crypto asset service providers will be accountable to the rules in reporting jurisdictions where they are tax residents, where they are incorporated and organised under national law and subject to tax reporting requirements, where they are managed from, where they are operating from a regular place and business and where they are performing relevant transactions via a branch based in a jurisdiction that is adopting the rules.

"The OECD foresees accordingly greater tax transparency on the basis that transactions will be aggregately reported by crypto asset type, and by making a distinction between outward and inward transactions. To enhance data usability for tax administrators, reporting on exchange transactions will be distinguished between crypto to crypto as well as crypto to fiat currencies. Reporting crypto asset service providers will also be compelled to delineate transfers by type (for instance, air drops, income stemming from staking or loans), where they have such knowledge available to them.", continues Chatelain


Further crypto regulation?

With the popularity of crypto currencies having grown significantly in recent years, calls for regulation were always expected to grow more frequent as the industry gathers greater momentum. With this in mind, where could the sector see further regulation?

According to Chatelain the CARF proposals are themselves part of a “much broader global push” to bring greater regulation to the crypto asset market.

“The European Central Bank (ECB), in response to requests from both the European Parliament and the European Commission (EC), has already published its opinion on EC proposals for regulation to extend traceability requirements to transfers of crypto assets. Like the OECD, the proposed EC regulation will compel crypto asset service providers to collect full information about parties involved in crypto asset transfers and make this available to regulators."

“Perhaps even more significantly, the EC has also proposed broad ranging regulation in the form of its Directive on Administrative Cooperation 8 (DAC 8) which will be broader in scope than current EU regulations. DAC 8 will provide financial authorities with new capabilities to act against fraud and tax evasion, and implementation is expected within the next 18 months. “

Elsewhere, the International Monetary Fund (IMF) has called for international action to ensure the future regulation of cryptocurrencies to head off the market’s potential for ‘destabilising´ countries’ financial health. The IMF is demanding that crypto firms face regulation similar to that of traditional financial institutions  such as an obligation to obtain licences and to store data, transfer and settle funds and hold reserves and assets.

Kirkterp-Møller also emphasized her belief that the industry will see further crypto asset regulation everywhere. She cited the Markets in Crypto Assets Regulation (MiCA), whose implementation is expected in 2023-24.

However, the biggest change area for the Muinmos CEO is in the area of CBDCs, “A lot of countries are seriously considering issuing such a currency, including the UK and China, and their creation, I believe, might prove to be a game-changer in the way money is regulated, as now the central banks might have, basically, access to all the transactions performed – taking us from a government that controls the issuing of the money but has very limited supervision over it, to zero governmental involvement or control, to full governmental involvement and control.”

Further developments

Beyond international developments, what else needs to be done regulation wise on the crypto asset industry? Chatelain believes that the task of bringing the crypto market beneath the regulatory umbrella in a safe way is a very significant one, with regulators playing catch up in many respects.

He said, “It remains challenging for regulators to keep abreast of market developments and apply any existing regulatory frameworks to this area. Making their task even more difficult is the sheer number and type of crypto asset activities that fall beyond the scope of existing securities frameworks, as well as the various approaches of governments and legislators around the world toward the crypto asset sector."

"In the last three years, crypto assets have become a priority for regulators, standards setters and policymakers. At a global level, discussion around crypto assets and stablecoins have taken place. Among the key drivers of these discussions are the need to remove obfuscation mechanisms that aim to protect the identity of crypto asset owners, as well as stemming the growth of decentralised finance."


According to Chatelain, future regulation will naturally seek to enforce greater protection for  consumers given the general lack of knowledge, awareness and understanding of the crypto assets market. He points to the fact that the European Securities and Markets Authority (ESMA) is raising awareness of the risks crypto assets pose to investor protection and market integrity, and warns  of the absence of adequate rules, monitoring and enforcement mechanisms capable of deterring market abuse. Chatelain feels that protecting the global financial system from the risks posed by crypto assets and the question of tax evasion implications are other key areas where regulation will invariably be required in future. Chatelain concludes that,

"The proposed OECD CARF regulations currently undergoing a consultation process are a vital and necessary step in the regulation of the crypto assets market. Once implemented, CARF will contribute to global tax transparency and help ensure that all transactional data carried out in crypto assets can be collected and exchanged."


“Specifically, the new framework will target assets that are held and transferred in a decentralised way and thus not normally visible to traditional financial regulators. The recent OECD public consultation document also extends the OECD Common Reporting Standard. In short, we are now a step closer on the difficult journey of making crypto assets of various types accessible for assessment and reporting.”

To Kirkterp-Møller, as crypto assets exceed the more narrow term of cryptocurrency, the appropriate form of regulation for these assets is similar to that of other financial instruments. She said, “Given the amount of crypto-related crime and the eroding levels of trust in Crypto assets (like NFT), I’d say there are good grounds to believe that, to crypto assets at least, regulation will bring more benefit than harm.”

She continued, “Another important regulation can be carbon-print related. Since crypto is a manifestation of a carbon-print, there are initiatives to bring that into consideration when regulating it. What environmentalists are saying is – you want to increase your carbon-print in order to be able to pay with crypto? Sure, but your choice has an effect on society, and therefore you are required to pay it. That goes hand in hand, in fact, with a very important role of regulation, which is mitigating the negative results of an action by making its performer internalize them.”

This article was first published  on FinTech Global in May 2022.
Copyright © 2022 FinTech Global


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