OECD Issues Framework to Tackle International Tax Evasion Using Crypto-Assets
The Organization for Economic Cooperation and Development (OECD) has issued a global tax reporting framework for cryptocurrencies that will assist tax authorities in keeping track of cross-border transactions of crypto assets.
OECD Releases New Crypto-Asset Reporting Framework
Following reports of India’s official digital currency launch, the League of Developed Countries has now created a framework that could help maintain track of how cryptocurrencies are traded across regional boundaries. Furthermore, this framework could be universal, implying that the currency remains centralized.
The OECD published a global framework for governments to keep track and report crypto transactions, with the automatic exchange of information between countries and required customer identification at its core. The two measures would be deemed part of the cryptocurrency due diligence process.
A Necessary Step in Crypto Space
The OECD stated that the move coincides with the fast adoption of crypto assets for a large array of investment and financial applications, expressing concern that the crypto assets market posed a significant risk to recent advances in global tax transparency.
Readers may recall that in April of 2021, the Group of 20 instructed the OECD to establish a framework for the automatic exchange of tax-relevant data pertaining to crypto assets. The CARF specifies the applicable crypto assets, transactions, and intermediaries, as well as other service providers who will be required to report.
OECD Secretary-General Mathias Cormann stated:
“Today’s presentation of the new crypto-asset reporting framework and amendments to the Common Reporting Standard will ensure that the tax transparency architecture remains up-to-date and effective.”
The framework will encompass every digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to verify and safeguard transactions.
The proposed global regime integrates recent advancements in the Financial Action Task Force’s global anti-money laundering requirements. According to the report, countries’ due diligence procedures will necessitate the identification of both individual and entity clients, as well as their directing persons. The framework mandates aggregate reporting, segmented by kind of crypto asset and type of transaction.
Once this proposal is accepted, it might prevent information arbitrage between jurisdictions, and tax authorities could become more stringent about reporting and compliance obligations. These measures would prevent buyers of a currency from selling it in multiple geographies in order to make a profit and avoid paying taxes – something India has often emphasized.
India to Drive the Initiative
India is already a staunch supporter of the global framework and has voiced its concerns about the effects of allowing private currencies to circulate and how they could be used to fund terrorism and other anti-national activities on the dark web. The Reserve Bank of India and the Ministry of Finance have both supported such a framework for monitoring virtual currencies.
The Crypto Asset Reporting Framework (CARF) will be presented to the Group of 20 finance ministers this week in Washington, according to the OECD. India is a participant in this endeavor and, given its security concerns along both its western and eastern borders, might be one of the framework’s biggest advocates.
