On Oct. 10, 2022, in Washington, the Organization for Economic Co-operation and Development (OECD) released its final report outlining new reporting requirements for crypto-assets and electronic money, published along with revisions to the current Common Reporting Standard (documents are available at https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.pdf. For more questions/answers on the scope of cryptocurrency regulation, see https://www.ukfinance.org.uk/system/files/2022-05/UK%20Finance%20Response%20CARF%20and%20CRS%20amendments%2029.04.22.pdf).
Regarding the former (CARF), it is first worth noting that it should not be regarded as a stand-alone, but as part of a fast-growing body of regulation that applies to the crypto-asset industry. Developments such as the EU's Markets in Crypto-Assets Regulation (MiCA) will narrow the instances in which jurisdictions that do not adopt CARF gain an advantage by requiring an increasing local presence for regulatory purposes, leading to mandatory reporting under CARF. In this context, cryptocurrencies and other crypto-assets (but limited to those used for investment or payment services) fall under the reporting obligation. The obligation would fall on intermediaries or other service providers that enable or make a platform available for the exchange of cryptocurrency or other assets, facilitate certain reportable payments, or enable the transfer of crypto-assets. One of the most obvious concerns regards the elimination of the requirement to report the receiving wallet address for all transfers to non-hosted wallet addresses, which could lead to proportionality issues, although it does not affect the need for crypto-asset service providers to report transfers to external wallets, retaining their details for five years. In addition, cryptocurrency payment transactions will only be subject to reporting if they exceed US$50,000, and self-reports will not have to be updated every three years.
The OECD also indicated that it is working to "ensure broad implementation of the CARF as a single global reporting framework for relevant cryptocurrency assets."
Regarding the latter (CSR), which was established in 2015 on the basis of previous tax legislation, the changes include e-money providers and e-money accounts (reportable above $10,000 on a 90-day moving average), and bring into scope central bank digital currencies and some stable currencies as deposit accounts, and include crypto-assets as financial assets.
The difference between the two is essentially about the approach. The CARF is basically based on the CRS model, but rather than mandating reporting of assets held, it would instead demand reporting of certain transactions.
The OECD also notes that it will continue to develop guidelines to support the consistent application of the CARF, including in terms of the definition of relevant crypto-assets and, in particular, the criteria for adequately determining that a crypto-asset may or may not be used for payment or investment purposes, as well as paying close attention to the development of decentralized finance.
The obligations under the Framework apply to "Reporting Crypto-Asset Service Providers" (CASPs), which encompass any natural or legal person who, as a business activity, delivers a service to "perform" for itself or on behalf of clients a Reportable Transaction, including the provision of a trading platform.
This definition is likely to exclude software providers, even though many solutions contemplate both software and access to services, which will need to be evaluated separately. The analysis for decentralized exchanges and other types of decentralized finance may be more nuanced, particularly when the decentralized application is overseen by a decentralized autonomous organization or DAO.
Providers should fall within the scope of virtual asset service providers, so they should be able to collect and review their clients' documentation, including AML or know-your-customer documentation.
The categories of transactions that should be highlighted are (i) exchanges between relevant crypto-assets and fiat currency, (ii) exchanges between one or more forms of relevant crypto-asset
Financial assets (for CRS purposes) retain their status even if they are issued in the form of cryptocurrency. If a tokenized asset is held directly by the investor, it will be reported under the CARF, whereas, in the case where it is held through an intermediary, such as a bank, it would be reported under the CRS for as long as it is held, and under the CARF when it is disposed of.
On the other hand, there are no specific rules for DAOs, given the oddity of their legal structure: if they lack legal personality, it can be debated whether the persons involved are engaging in transactions. Governance tokens might be excluded from the definition of relevant crypto-assets, although in many cases tokens are traded on exchanges so that they are indistinguishable from other tokens.