FATCA & CRS Alert 2022-04

Following an initial public consultation document (published in March 2022) and a public meeting with all the relevant stakeholders (held in May 2022), on 10 October 2022, the OECD published a highly anticipated new crypto-asset reporting framework (CARF).  

With the drastic development of crypto-assets over the past few years, the role of traditional actors have been impacted as their intermediation might not always be required in the chain of crypto-assets holdings.  This constitutes a shift from the traditional financial services industry which is highly regulated.  Conscious of the risk of opacity and potential tax evasion, the OECD, at the initiative of the G20, deemed necessary to develop a framework for an automatic exchange of information on crypto-assets.

The aim of the new CARF is to enhance transparency on the holding of crypto-assets by taxpayers through a system of exchange of information between jurisdictions. Similar to CRS (which currently has over 100 participating jurisdictions), the CARF aims for jurisdictions to report the information on an aggregate basis (depending on the type of crypto-asset and transactions).

All in all, two major modifications are expected to affect the current automatic exchange of information standard:

• amendment to the CRS to bring new financials assets within its scope and enhancing the quality of the reporting, and
• an entirely new reporting framework.

Under the new framework, any digital representation of value which is based on a secured distributed ledger to validate transactions will have to be reported.

Furthermore, the CARF provides a very broad definition of intermediaries and service providers subject to due diligence, data collection and reporting requirements.

Whilst this publication constitutes a first step towards the implementation of the CARF and CRS amendments, full implementation is subject to further publications, guidelines and legislative steps. This includes:

• IT schemas and specifications,
• for EU countries, a European directive (i.e. DAC8), and
• domestic laws and guidelines.

Due to the growing importance of tax risks mitigation including reporting standards, it is important to keep the lookout on any development on the CARF and CRS updates and that actors of the crypto-assets industry as well as individual investors brace themselves for risk assessments and implementations when domestic legislations enter into force in due course.   

KPMG Luxembourg is well equipped to assist you in this process by carrying out a full review of all the entities and assets targeted by the new CARF and the overall tax implications of such investments.

If you have any questions or would like additional advice, please get in touch.