On March 22, OECD has published a public consultation document on the new “Crypto-Asset Reporting Framework” (hereinafter referred to as the “CARF”) and on the amendments to the actual Common Reporting Standard (hereinafter referred to as the “CRS”). In this document, the OECD exposes a proposal of a new set of rules ensuring tax transparency with respect to Crypto-Assets, defined as “digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”.
The reference to “similar technology” should ensure that those rules include new asset classes that may emerge in the future and that operate in a functionally similar manner.
A. THE CARF
The CARF consists in three building blocks:
1. Rules that can be transposed into domestic law to collect information from resident Crypto-Assets intermediaries;
2. A framework of bilateral or multilateral competent authority agreements for the automatic exchange of information collected under the CARF;
3. Technical solutions to support the exchange of information.
Currently, OECD has only drafted the first building block: the rules and commentary about collection of information from Crypto-Assets intermediaries. Those rules aim to define (i) the scope of Crypto-Assets to be covered, (ii) the intermediaries subject to data collection and reporting requirements, (iii) the transactions subject to reporting as well as the information to be reported in respect of such transactions and (iv) the due diligence procedure to identify Crypto-Asset users and the relevant tax jurisdictions for reporting purposes.
(i) Scope of Crypto-Assets to be covered
All kind of Crypto-Assets (e.i. cryptocurrencies, stablecoins, security tokens, non-fungible tokens (NFTs) or any derivative crypto-assets) are covered by the CARF except for two categories of Crypto-Assets that are excluded from reporting requirements:
- “Close-Loop Crypto-Assets”: Crypto-Assets that are issued as a means of payment with a merchant for the purchase of goods or services, that can only be transferred by or to the issuer or the merchant and that can only be redeemed for fiat currency by a merchant redeeming with the issuer.
- “Central Bank Digital Currencies”: digital fiat currencies issued by a Central Bank or a monetary authority, which function like money held in a traditional bank account.
(ii) Intermediaries in scope
Intermediaries facilitating exchanges between Crypto-Assets, as well as between Crypto-Assets and fiat currencies by acting as a counterparty or as an intermediary (such as ATMs or brokers) or by making available a trading platform would be considered as “Reporting Crypto-Asset Service Providers” under the CARF.
As the OECD noticed, those intermediaries fall within the scope of anti-money laundering regulations so that they are in position to collect and review the required documentation of their customers.
(iii) Reporting requirements
Four types of transactions would be reportable under the CARF:
1) Exchanges between Crypto-Assets and fiat currencies;
2) Exchanges between one or more forms of Crypto-Assets;
3) Transfers of Crypto-Assets in consideration of goods or services;
4) Transfers of Crypto-Assets: transactions that move a Crypto-Asset from or to the Crypto-Asset address or account of one user.
OECD proposes to report those transactions on an aggregate basis by type of Crypto-Asset and distinguishing between Crypto-to-Crypto and Crypto-to-fiat transactions. The reporting would also categorise transfer by transfer type.
For Crypto-to-fiat transactions, the fiat amount paid or received should be reported as the acquisition amount or gross proceeds. For Crypto-to-Crypto transactions, it is proposed that the value of the Crypto-Asset (based on the market value at time of acquisition) and the gross proceeds (based on the market value at the time of disposal) must be reported in fiat currency. For transfers of Crypto-Assets in consideration of goods or services (the intermediary processes payments on behalf of a merchant accepting Crypto-Assets in payment for goods or services), the value of the transaction should be reported in fiat currency.
In practice, OECD suggests that the following information must be reported:
- Name, address, jurisdiction of residence, taxpayer identification number, date and place of birth of each user;
- Name, address and identifying number of the intermediary;
- For each type of Crypto-Asset with respect to which one of the relevant transactions has been effectuated during the relevant calendar year:
- The full name of the type of Crypto-Asset;
- The aggregate gross amount paid, the aggregate number of unites and the number of transactions in respect of acquisitions against fiat currency, the number of transactions in respect of disposals against fiat currency, the number of transactions in respect of acquisitions against other Crypto-Assets, the number of transactions in respect of disposal against other Crypto-Assets, the number of transfers in consideration of goods or services, the number of transfers to the user, the number of transfers by the user.
- The wallet address to which the transfer has been effectuated (not associated with the intermediary and which is not also another intermediary covered by CARF).
(iv) Due diligence procedures
The CARF contains the due diligence procedures to be followed by the intermediary in identifying its users (individuals, entities, as well as the natural persons controlling certain entities), determining the relevant tax jurisdictions for reporting purposes and collecting relevant information.
B. AMENDMENTS TO THE CRS
The OECD is proposing a set of amendments to the CRS in order to bring new financial assets, products (such as electronical money products and Central Bank digital currencies) and intermediaries in scope.
The proposal includes changes to the definitions of “Financial Assets” and “Investment Entities” to ensure that derivatives that reference Crypto-Assets and are held in custodial accounts and investment entities investing in Crypto-Assets are covered by the CRS.
Finally, the proposal contains provisions to ensure an efficient interaction between the CRS and the CARF.
Interested parties are invited to send their comments by no later than 29 April 2022.
In the meantime, the European Commission is also working on new Directive extending automatic exchanges of information to crypto-assets and electronic money.
1] Designed to promote tax transparency with respect to financial accounts held abroad, and requires the collection and automatic exchange of information of the identify of account holders, as well as the balance and the income paid or credited to the accounts.
Olivier Willez – Avocat associé - Olivier.firstname.lastname@example.org