OECD Released Crypto Asset Reporting Framework, AEoI Reachs Crypto Assets

The Organization for Economic Cooperation and Development (OECD) officially released  a  framework titled Crypto-A sset Reporting Framework (CARF) to maximize  information exchange efforts between countries on transactions and ownership of crypto assets. 

CARF was created to  provide a  standard for the information that different countries need to  convey on crypto asset transactions while providing a mechanism that allows different countries   to access  the  information  . That way,  information  and annual reports on crypto asset ownership can be exchanged by jurisdictions incorporated for automatic exchange of information (AEoI).

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CARS was inaugurated at the  instigation of  G-20 countries  to the  OECD to overcome constraints on recording transactions and ownership of crypto assets.  Recently, the  growth of the  global crypto market has grown more  and more significantly.  Activists of a set of cryptos are increasingly aggressively making it an  investment and financial instrument.  Unlike   traditional financial  products,  crypto asset transactions can be carried out without the  intervention of conventional financial institutions, so  no administrator has  Full visibility  over transactions or ownership of KRIPTO assets.

The proliferation of   crypto   brokers  has created new intermediaries and  service providers, such as   crypto asset exchanges or digital wallets whose footprint has not been properly recorded.      This development means that crypto assets and  related transactions have not been comprehensively covered  in the  OECD/G-20 Common Reporting Standard.  This  has caused global  unrest regarding the  ownership and  transactions of crypto  assets which has the potential to cause tax evasion from crypto asset transactions.

CARF, which  was published on October 10,  2022, is a  finalized report from a  public consultation document that proposes rules related to the unification of tax reporting on crypto assets at a  global level.  In response to the initial public consultation document, the OECD revised several matters that have come under public criticism, such as the  definition of asset  coverage, the  treatment of decentralized finance  (DeFi)  platforms,  and  the requested parties to provide informational reports.

 CARF coverage

Pthere is a basis, CARF includes any crypto asset that can be used for payment or investment purposes.  In  the report,     cryptoassets  are defined as  digital representations of value based on  cryptographically secured distributed ledgers  or similar technologies for validate and secure related transactions.  Besides applying to  cryptocurrencies such as Bitcoin or  Ether,  this definition also includes stable coins, crypto derivatives, or crypto  assets that represent financial  assets  and NFTs   certain used as payment instruments or investasi.

CARF makes exceptions for certain assets that are already covered by  the  OECD Common Reporting Standard.  The asset exclusion includes the  following three categories:

1. Apredetermined set of  cryptos  does not have sufficient capacity for payment and investment purposes;
2. A digital currency belonging to the  Central Bank that represents the  Fiat Currency  of  the relevant central bank  whose function is similar to that of money held in a traditional bank accountl; and  
3. Certain Electronic Money Products that represent one Fiat Currency and can be exchanged at any time in the same Fiat Currency at the nominal value as per the regulations

In general, CARF includes requests for reporting on transaction traces: exchange of crypto assets against  fiat currencies,   exchange of crypto assets   against other    crypto  assets, transfers between  crypto assets, to crypto asset-based retail  transactions.  Retail reporting  is only required  if the  complainant is required to  conduct a verif ikasi against the  customer under the anti-money loundry rules.   CARF added a  new de minimus threshold for retail transaction  reporting  of $50,000.

Reporting Party

    As stated in its final report, CARF stipulates that the  collection of information related to these  crypto assets is carried out by  a  reporting  service provider or Reporting Crypto-Asset Service Provider  (RCASP). This  RCASP includes entities  or  individuals providing  services for  crypto  asset exchange transactions for or  on behalf of  customers, including acting as counterparties or intermediaries   to make   exchange transactions or provide a trading platform.

Parties related to crypto  transactions, such as  exchanges, brokers, and  crypto asset merchant dealers/platforms   ,  as  well as crypto ATM operators  fall within  the scope of the RCASP definition.  With respect to Decentralisation Finance (DeFi),  a DeFi exchange or  DeFi protocol  is considered an RCASP if the entity has sufficient control or influence over the platform.   In addition, CARF also contains a scheme to avoid double reporting if the RCASP has nexus in more than  one jurisdiction.

Asset Valuation

CARF requires the  reporting party or informer  to  disclose the fair market  value of the  assets required to be reported and  the number of units transacted to the  tax authorities incorporated in    the    AEoI system.  However, based on the  input of public opinion,  the information does not include the  address of the  digital wallet that made the  transaction.  The tax authorities  in  this case do not have the authority  to know the  address of the digital  wallet that is actually transacting.

Furthermore, there are  several appraisal alternatives for assets that are difficult to assess.

1. A crypto asset that has no value can be valued equal to or comparable to an asset of value that  can be exchanged for that crypto asset, in the event of an  exchange of  a worthless  asset  for  an asset of value.
2. Valuation uses the book value of internal  accounting that RCAPS manages  with respect to  related assets.
3. If  book value  is not available, it can use the  value provided by  a third party or a site that states the  current price of the relevant crypto asset.
4. If not available,  the value can use the  latest valuation of the relevant crypto asset by RCASP.

The policies contained in the CARF are left to  each country to be implemented under  the  provisions of the local Law.   According to the  Managing Partner of BATS-Consulting, Brian Pramudita,  this policy still has the potential to create inconsistencies because its implementation is based on the readiness of  each country.  There is a risk that  some countries do not implement  such  policies when other countries  choose to be  able to  implement them so that the  exchange of  information related to crypto assets becomes less smooth.    Infact,    this can certainly hinder state tax  authorities who have implemented crypto asset information exchange policies to minimize tax avoidance carried out through  crypto transactions.