48 Countries Commit to CARF：Attitudes and Future Crypto Tax Transparency Framework

On November 10, 48 countries, including major countries such as the United States, Canada, Germany, and Japan, pledged to combat related tax evasion through the Crypto Asset Reporting Framework (CARF), which countries plan to implement by 2027. This will require strong support from all stakeholders if it is to be implemented globally by 2027.

Short-term impact of commitment to CARF

CARF was created amidst the tax challenges posed by the rapid growth of crypto-asset markets and the interest of countries in tax cooperation on crypto-assets.CARF provides the basis for an automated exchange of information between crypto-currency exchanges' tax authorities, and is a concerted effort by contracting states that are strengthening tax compliance and curbing tax evasion in the fast-growing crypto-markets.

CARF addresses tax evasion related to cryptocurrencies through cooperation and information exchange and is an important step towards maintaining financial transparency and combating global tax evasion. With respect to the detailed issues related to CARF implementation, countries further discussed these issues at the 16th Plenary Session of the Global Forum, held in Lisbon, Portugal, from November 29 to December 1, 2023 : In response to the G20's call for widespread implementation of the Crypto Asset Reporting Framework (CARF) in 2022 and the call from relevant countries for a revision of the AEOI standard, the Global Forum has established a new voluntary group, the CARF Group. Taking into account the growing maturity of the EOIR and AEOI standards, the Global Forum has also agreed to adapt its peer review and monitoring processes to improve its ability to serve Forum members in the future.

Notably, the current list of participating countries covers all 38 OECD member countries and extends to include traditional offshore financial havens such as the British Overseas Territories of the Cayman Islands and Gibraltar. However, the absence of key markets such as China, Hong Kong (China), the UAE, Russia, Turkey and India, the non-participation of almost all African countries (except South Africa), and the participation of the only two Latin American countries (Chile and Brazil) diminish the global impact of the CARF . The future of a global tax transparency framework for crypto assets still has a long way to go.

Attitudes of the parties concerned

The countries that have committed to CARF this time are not unanimous in their attitudes. The UK, an old financial powerhouse, has a high opinion of CARF, with HM Treasury previously estimating that crypto tax avoidance could be as high as 55%-95%, and believes that participation in CARF provides a favorable international environment for the rational regulation of crypto taxation. However, third world countries have mixed attitudes towards CARF. On the supporters' side, Chile's Minister of Finance said CARF will help maintain progressive global fiscal transparency, and its audit-related head said this automated exchange of information speeds up the audit process and improves audit efficiency, citing the need for proper handling and protection of financial consumer data. South Africa was the only African country to join CARF, and the head of the organization said that signing the agreement would help South Africa keep up with the rapid development of the crypto-asset market.

Some countries have not reached a unified view on the implementation of CARF, such as Brazil, which is a contracting state, but recently the Brazilian Congress has conducted a number of debates on CARF, and the opposing side believes that the implementation of CARF will reduce the efficiency of the implementation of tax litigation and substantially increase the related administrative costs;

The implementation of CARF demonstrates the government's intent to gain access to information and expand control over the movement of crypto-assets. However, national attitudes towards CARF reflect differences in national perspectives. Some commentators have stated : CARF's rules should be translated into domestic tax legislation, In order to adapt to CARF, tax compliance procedures for many companies will need to be adjusted in the future, and operating costs may temporarily increase as compliance with these standards will bring new requirements, which may be passed on to vendors in the form of fees charged to consumers.

The implementation of CARF will also have a related impact on exchanges and traders. For exchanges, CARF requires exchanges to report cryptocurrency transactions . On the other hand , in a bull market, tens of billions of dollars flow from the traditional financial system into cryptocurrency exchanges and platforms, and traditional financial institutions want to stem the tide of capital flight to cryptocurrency platforms - some banks start offering their own in-house cryptocurrency trading services in 2021, which coincidentally, traditional financial institutions do not need to comply with that CARF standards in the framework.

Requiring exchanges and platforms to track cryptocurrency transactions also further illustrates the impact that CARF's  may have on the development of centralized cryptocurrency exchanges and platforms , which may benefit decentralized alternatives such as Dex.

CARF also has an impact on traders, and its impact on exchanges trickles down to end traders, i.e., cryptocurrency trades reported by exchanges become information that is taxed in various countries, which in turn has tax implications for end cryptocurrency traders.

Future Crypto Tax Transparency Framework

While CARF represents an important international effort to standardize crypto taxes, it is not the only agreement, and other international agreements for the exchange of tax information involving cryptocurrencies are moving forward.

In October of this year, the Council of the European Union formally adopted DAC8.DAC8 is a cryptocurrency tax reporting rule that gives the taxman jurisdiction to monitor and assess every cryptocurrency transaction within any EU member state.CoinBase's analysis notes that DAC8's crypto-legal provisions complement the anti-money laundering rules under the MiCA framework.DAC8 requires all EU-based crypto Asset Service Providers (CSPs) in the EU to report on the transactions of their EU clients in order to support anti-money laundering and anti-tax evasion. In addition to restricting crypto-assets, DAC8 also applies to financial institutions that issue central bank digital currencies (CBDC).

As international regulatory frameworks, CARF and DAC8 will not come into effect naturally, but require member states to enact domestic laws to implement them. With reference to past experience, DAC8 within the EU will soon be in place, but it will take time for CARF to be fully in place. The convergence of CARF and DAC8 reflects the efforts made globally on encryption tax regulation .