The OECD and the EU are planning to introduce reporting obligations and exchange of information on transactions with crypto-assets. The OECD has prepared a new framework called CARF for this and the EU proposes amendments to DAC 6 (new “DAC 8”).
1. What is CARF?
The crypto-asset reporting framework (CARF) is a new global tax transparency framework developed by the OECD for collection and automatic exchange of information on transactions in relevant crypto-assets. CARF was published by the OECD in October 2022 after extensive consultations with industry and professional bodies. The framework includes Rules and Commentary which could be transposed into domestic law in a similar way as has been done with the automatic exchange of information (AEoI) for financial accounts.
2. What are Relevant Crypto-Assets?
The definition of Relevant Crypto-Assets targets assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries. Crypto-assets fall within the scope of the CARF if they can be used for payment or investment purposes.
The term excludes from the reporting three categories of crypto-assets that pose limited tax compliance risks:
- Crypto-assets that cannot be used for payment or investment purposes;
- Central Bank Digital Currencies representing a claim in fiat currency on an issuing central bank/ monetary authority;
- Specified Electronic Money Products that represent a single fiat currency and are redeemable at any time in the same fiat currency at par value and meet certain other criteria.
3. What is reported under CARF?
The CARF would require reporting on certain transactions and not on assets that are held. The following types of transactions would be reportable:
- Exchanges between crypto-assets and fiat currencies;
- Exchanges between one or more forms of crypto-assets;
- Transfers of crypto-assets.
Transactions are to be reported on an aggregate basis by type of crypto-assets and with differentiation of outward and inward transactions. Transfers would need to be categorised by transfer type (e.g. airdrops, income from staking, loan, etc.) when such knowledge is available.
The information that would be collected and exchanged would include, inter alia, the aggregate gross amount or fair market value paid/received; the aggregate number of units and the number of relevant transactions in respect of acquisitions/ disposals of the Relevant Crypto-Assets.
4. Who will have to report under CARF?
The CARF would impose data collection and reporting obligations on Crypto-Asset Service Providers defined as entities and individuals that as a business provide services effectuating exchange transactions in relevant crypto-assets, for or on behalf of customers, including by acting as a counterparty, or as an intermediary, or by making available a trading platform. This definition covers intermediaries and other services providers, such as exchanges, brokers and dealers in crypto-assets, operators of crypto-asset ATMs.
Affected service providers will have to perform due diligence to identify their crypto-asset users, determine their tax residence jurisdiction for reporting purposes, and collect relevant information to comply with CARF reporting.
5. What is the current status?
At the moment, OECD has only published the final text of the CARF. The important decision about the CARF that is still pending is whether it should be a global minimum standard or only voluntary model framework. The OECD is meanwhile working on the implementation package to ensure the consistent domestic and international application of the CARF.
6. Will Switzerland implement CARF?
Pending the decision on whether the CARF would be a minimum global standard or only a recommended framework, Switzerland has not yet announced the transposition of the CARF into the domestic law. If the CARF is accepted as the global minimum standard, the earliest adoption in Switzerland would be in 2026. In this case the first exchange of data on transactions with crypto-assets would happen in 2027.
7. What is the EU’s plan?
It should be noted that there are similar initiatives at the EU level. In particular, the European Commission is currently considering amendments to the EU Directive on Administrative Cooperation (Directive 2011/16/EU, known as DAC 6). The new version of the DAC (DAC 8) contains provisions on reporting and exchange of information on crypto-assets which are consistent with the CARF. The current draft of DAC 8 requires all reporting service providers, irrespective of their location, to report transactions of clients residing in the EU. If these extra-territorial provisions are maintained in the final text of the directive, Swiss service providers working with EU clients are likely be affected and would need to make sure that they have appropriate processes and controls in place to report EU clients as required under DAC 8.
8. What should be done right now?
It is very likely that some form of the information exchange on crypto-assets will be adopted in the near future. Service providers offering any type of exchange services with crypto-assets should monitor the regulatory developments at the OECD and the EU level and assess potential implications of the additional reporting. In particular, legal documentation and customer experience matters should be considered, as well as implications for existing and new products and services.
LINDEMANNLAW can help you assess the potential impact of the CARF on entities in your group and monitor legislative developments with respect to CARF adoption by various jurisdictions. For entities potentially affected by CARF, we could review the customer onboarding processes to ensure that the required information may be collected.
Please feel free to contact us for more information, we are happy to help.
