OECD finalises global framework on cryptocurrency
The core of the framework is automatic exchange of information between countries and mandatory customer identification as part of the due diligence process. India has backed a global framework to ensure more effective monitoring of transactions in virtual assets.
The Crypto Asset Reporting Framework (CARF) will be presented to G20 finance ministers this week in Washington DC, the OECD said in a statement.
The initiative “comes against the backdrop of a rapid adoption of the use of crypto assets for a wide range of investment and financial uses,” the OECD said, warning that the crypto assets market “poses a significant risk that recent gains in global tax transparency will be gradually eroded”.
Due Diligence Procedures
The G20 had in April 2021 mandated the OECD to develop a framework for the automatic exchange of tax-relevant information on crypto assets. The CARF defines the relevant crypto assets in scope, transactions, and the intermediaries and other service providers that will be subject to reporting. Any digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions will be covered under the framework.
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The proposed global regime incorporates recent developments in the global anti-money laundering standards of the Financial Action Task Force. Due diligence procedures to be implemented by countries will require the identification of both individual and entity customers, as well as their controlling persons, it said. The framework requires reporting on an aggregate basis, divided by type of crypto asset and type of transaction.
Experts say this will prevent information arbitrage. “This fairly quick initiative on common reporting framework for crypto transactions by the OECD on the lines of the common reporting standards for financial transactions will ensure that ‘information arbitrage’ is not possible across jurisdictions and tax authorities in countries with strict reporting and tax compliance requirements (such as India) can take action on real-time basis,” said Sudhir Kapadia, partner, tax and regulatory services, EY.
Vikas Vasal, national managing partner, tax, Grant Thornton Bharat, said, “The proposed transparency framework is in line with the thinking of the revenue authorities, in general, that there needs to be more coordinated effort for the tracking and disclosure of these transactions, to bring them under the tax net.”
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