OECD Published a Global Crypto Tax-Reporting Framework

The Organisation for Economic Co-operation and Development published its Crypto-Asset Reporting Framework, or CARF, on October 10, 2022, establishing model rules for collecting and automatically exchanging tax information about transactions handled by crypto intermediaries.

The development mattered because the existing Common Reporting Standard was designed around financial accounts maintained by conventional institutions. Crypto assets could instead be transferred or held without a bank, broker or central administrator possessing a complete record. CARF attempted to close that visibility gap with a reporting architecture developed under a Group of 20 mandate.

Publication did not make CARF binding law on October 10. The document contained rules and commentary that jurisdictions could transpose into domestic legislation. International exchanges would also require legal agreements and operational infrastructure that had not been completed.

Closing a reporting gap

CARF covered assets based on cryptographically secured distributed-ledger or similar technology when they could be held or transferred for payment or investment purposes. The OECD said that could include stablecoins, derivatives issued as crypto assets and some non-fungible tokens. Central-bank digital currencies and specified electronic-money products were instead addressed through amendments to the Common Reporting Standard.

The framework was not a determination that every covered asset was taxable, a security or lawful in every jurisdiction. It supplied information that tax administrations could use when applying their own substantive tax rules.

Who would have to report

The central regulated category was the Reporting Crypto-Asset Service Provider: a business providing services that effect exchange transactions for or on behalf of customers. The accompanying commentary contemplated exchanges, brokers, dealers and operators of crypto-asset automated teller machines among the businesses that could fall within that functional test.

A provider would report where it had a qualifying connection, or nexus, to an implementing jurisdiction. The framework therefore sought to attach reporting duties to identifiable customer-facing businesses even when the underlying assets moved across decentralized networks.

The wording did not place every software developer, validator or self-hosted wallet user under an intermediary reporting obligation. Whether a decentralized platform had a reportable service provider depended on whether an entity or individual exercised sufficient control or influence and provided qualifying exchange services as a business.

Transactions and customer information

CARF identified three broad transaction classes: exchanges between relevant crypto assets and fiat currencies; exchanges between different relevant crypto assets; and transfers, including specified retail-payment transactions. Reporting was generally organized as annual aggregate amounts for each asset and transaction type rather than a public, transaction-by-transaction ledger.

For reportable customers, providers would collect identifying and tax-residence information through due-diligence procedures. Reported fields could include names, addresses, taxpayer-identification numbers, jurisdictions of residence, gross proceeds, acquisition values, fair-market values and the number of units involved, depending on the transaction.

That design made crypto-to-crypto activity visible rather than limiting the system to withdrawals into government currency. It also sought information about transfers to wallet addresses not associated with another known service provider, although the framework did not convert self-custody itself into a prohibited activity.

What remained unsettled

The October 10 publication was a policy framework, not an operational exchange network. The OECD said work was continuing on an implementation package for consistent domestic and international application. No common first reporting year, filing deadline, penalty schedule or active exchange relationship was established by the publication alone.

The immediate institutional consequence was therefore preparatory. Exchanges and other potentially covered businesses could see the customer-identification and transaction-reporting model that governments were being asked to adopt, while governments still had to decide whether, when and how to enact it. CARF’s eventual reach would depend on participation, compatible domestic rules and agreements allowing tax authorities to exchange the collected information securely.