Introduction to Crypto-Asset Reporting Framework, the new OECD international standard on automatic exchange of information and amendments to the CRS

United Kingdom

In 2023, the OECD conducted its first comprehensive review of the Common Reporting Standard (“CRS”) since CRS was adopted by the OECD in 2014. This has resulted in amendments in two key areas:

(A) The introduction of a new tax transparency Crypto-Asset Reporting Framework (“CARF”) which provides for the automatic exchange of tax information on transactions in Crypto-Assets

This is to address the emergence of Crypto-Assets, which can be transferred and held without interacting with traditional financial intermediaries and without any central administrator having full visibility on either the transactions carried out, or the location of Crypto-Asset holdings.

(B) Amendments to the CRS

  1. Certain digital financial products are now included in the scope of the CRS, as they may constitute a credible alternative to holding money or Financial Assets in an account that is currently subject to CRS reporting.

    In this regard, the CRS now covers “Specified Electronic Money Products” and “Central Bank Digital Currencies”.

    In light of the development of the CARF, changes are also made to the definitions of “Financial Asset” and “Investment Entity”, to ensure that derivatives that reference Crypto-Assets and are held in Custodial Accounts and Investment Entities investing in Crypto-Assets are covered by the CRS.

    In practice, beyond the direct transacting in and holding of Crypto-Assets, investors can invest in Crypto-Assets through funds and other wealth management vehicles, whose purpose is to acquire and hold Relevant Crypto-Assets for investment purposes. By doing so, investors can obtain exposure to price fluctuations of the fund’s underlying Crypto-Assets, without directly owning any Crypto-Assets. Although interests in funds and wealth management vehicles are already subject to reporting under the CRS, the definition of Investment Entity does not currently contain Crypto-Assets as a category of eligible investments that would bring the Entity in scope of the CRS, as the definition presently only encompasses Financial Assets and money. The definition of Investment Entity is therefore expanded to include the activity of investing in Crypto-Assets.
  2. The amendments enhance the reporting outcomes under the CRS, including through:
    • the introduction of more detailed reporting requirements;
    • the strengthening of the due diligence procedures;
    • the introduction of a new, optional Non-Reporting Financial Institution category for Investment Entities that are genuine non-profit organisations; and
    • the creation of a new Excluded Account category for capital contribution accounts.

The CRS now also contains provisions to ensure an efficient interaction between the CRS and the CARF.

On 10 November 2023, the UK released a joint statement with a number of other jurisdictions welcoming the introduction of CARF and committing to swiftly transposing the CARF into domestic law and activating exchange agreements in time for exchanges to commence by 2027, subject to national legislative procedures. The UK also commits to implementing the OECD CRS amendments in line with the CARF timeline. For a link to the joint statement please click here

As at the date of this note, the UK regulations that require UK Financial Institutions to collect, maintain and report information for exchange under the CRS have not been amended to incorporate (B) Amendments to the CRS.

Spring Budget update

As part of the Spring Budget yesterday (6 March 2024), the government announced it was launching consultations to seek views on the implementation of the OECD’s amendments to the CRS and the implementation of CARF.

The consultation:

  • on CARF will also seek views on a potential extension of the CARF to include reporting on UK resident taxpayers by UK service providers;
  • on the CRS will also seek views on a potential expansion of the regime to including reporting on UK resident taxpayers by UK financial institutions

For a link to the OECD (2023), International Standards for Automatic Exchange of Information in Tax Matters: Crypto-Asset Reporting Framework and 2023 update to the Common Reporting Standard please click here