Big changes in crypto-asset reporting and CRS
At the request of the G20, and in view of consistently increasing tax administrations visibility, the OECD released a public consultation document on 22 March 2022 introducing a Crypto-Assets Reporting Framework (CARF), as well as proposed amendments to the Common Reporting Standard (CRS).
In recent years, we’ve seen the rise of crypto-assets. So, what’s the big deal? Well, first and foremost, this new asset type can be transferred and held without the involvement of traditional financial intermediaries and beyond the control of any central bank, government or public body. This has the potential of undermining global tax transparency initiatives such as the CRS for the automatic exchange of financial information between participating countries.
1. What kind of crypto-assets are impacted?
The proposed definition of crypto-assets under the CARF focuses on the use of “cryptographically secured distributed ledger technology”. The definition also includes a reference to “similar technology” to ensure it can include new asset classes that emerge in the future and that operate in a similar manner. In the current CARF, other assets that can be held and transferred in a decentralized manner, without the intervention of traditional financial intermediaries (e.g. stablecoins, derivatives issued in the form of a crypto-asset and certain non-fungible tokens (NFTs)) are also targeted.
2. Which intermediaries are affected?
The definition of Crypto Assets Service Providers (CASPs) subject to data collection and reporting requirements is very broad and would cover not only those facilitating exchanges between crypto-assets, but also between crypto-assets and fiat currencies. The definition would therefore cover intermediaries providing exchange services such as brokers and dealers in crypto-asset and operators of crypto-asset ATMs.
3. What are the obligation requirements for new intermediaries?
New intermediaries will need to take necessary measures to ensure they comply:
- Similar to existing AML/KYC and CRS obligations, intermediaries will have to implement new due diligence procedures to identify crypto-asset users and the relevant tax jurisdictions for reporting purposes
- On an annual basis, reporting CASPs will have to report certain information on their crypto-asset users to the tax authorities
4. What kind of information?
- For crypto-asset users, the information to report will be in line with what is currently reported under CRS: name, address, jurisdiction(s) of residence, TIN(s) as well as date and place of birth of each crypto-asset user
- For an entity that is identified as having one or more controlling persons that is a reportable person: name, address, jurisdiction(s) of residence and TIN(s) of the entity and the name, address, jurisdiction(s) of residence, TIN(s) as well as date and place of birth of each Reportable Person. In addition, the role(s) by virtue of which each reportable person is a controlling person of the entity must also be reported
- For the reporting CASP: name, address and identifying number (if any)
5. Which transactions need to be reported?
Four types of transaction need to be reported:
- Exchanges between crypto-assets and fiat currencies
- Exchanges between one or more forms of crypto-assets
- Reportable Retail Payment Transactions
- Crypto-asset transfers
As the reporting of every transaction involving crypto-assets would not be feasible, relevant transactions will only be reported on an aggregate basis.
6. What’s new in the CRS?
The objective of the CRS amendments is twofold: the idea is to include the recently emerging crypto currencies in the scope of the CRS while increasing the quality and usability of the reporting.
Extension of the CRS: Some definitions will have to be extended to include the reporting of crypto-assets – e.g. “depository institution”, “investment entity” and “financial assets”.
On one hand, these amendments bring new entities under the scope of the CRS framework and, on the other hand, extend the reporting obligations of financial institutions to include this new type of reportable account.
Improving the existing CRS: The plan is to expand the reporting requirements to include the following information that is currently either optional or excluded from reporting:
- The function assumed by the controlling persons regarding the reported Passive NFE
- Whether the reported account is preexisting or new (and whether a valid self-certification has been obtained)
- Whether the account is a joint account and the number of account holders
- The type of financial account reported
7. What are the industry’s concerns and what are the challenges ahead?
During the consultation phase (22 March – 29 April 2022), industry participants voiced their concerns on:
- substantial changes to existing processes and procedures
- the risk of double reporting if the CARF and CRS reporting requirements are not carefully aligned
- potential negative effects of reporting burden on innovation and emerging technologies
- the high cost of changing CRS compared to expected benefits
- potential divergencies between countries as seen during CRS and FATCA implementations
8. What’s next?
A public consultation meeting was held at the end of May 2022. Based on the input received, the OECD plans to finalize the rules and the amended CRS. Several points will need to be clarified within the final CARF – e.g. the need to either restrict or widen the scope of the crypto-assets and intermediaries to cover, but also the valuation requirements to take into consideration when reporting the transaction.
In the EU, the Directive on Administrative Cooperation aimed at extending the reporting framework to cover crypto-assets (DAC8) is still expected to be issued, and may partially or substantially be based on provisions in the CARF. For the extension and improvement of CRS to apply in the EU, an update of the EU version of CRS (DAC2) will also be required.
Still have questions? Reach out to our team of experts and learn more about how these updates affect you.