48 countries commit to implementing CARF: Attitudes of various parties and the future of the crypto tax transparency framework

Author: TaxDAO

On November 10, 48 countries, including major nations such as the United States, Canada, Germany, and Japan, committed to combating related tax evasion through the Crypto Asset Reporting Framework (CARF), with plans to implement the framework by 2027. Achieving global implementation by 2027 requires strong support from all stakeholders.

Short-term Impact of Commitment to Implement CARF

CARF emerged in response to the tax challenges brought about by the rapid development of the crypto asset market and the increasing focus of countries on tax cooperation regarding crypto assets. CARF provides a foundation for the automatic exchange of information between tax authorities and cryptocurrency exchanges, representing a collective effort by contracting parties to enhance tax compliance and curb tax evasion in the rapidly growing crypto market. By addressing tax evasion related to cryptocurrencies through cooperation and information exchange, CARF is an important step towards maintaining financial transparency and combating global tax evasion. Regarding the details of CARF implementation, countries further discussed these issues at the 16th Plenary Meeting of the Global Forum held in Lisbon, Portugal, from November 29 to December 1, 2023: In response to the G20's call for the widespread implementation of the Crypto Asset Reporting Framework (CARF) in 2022 and related countries' calls for the revision of AEOI standards, the Global Forum established a new voluntary group—the CARF Group. Considering the increasing maturity of EOIR and AEOI standards, the Global Forum also agreed to adjust its peer review and monitoring processes to enhance its ability to serve forum members in the future. Notably, the list of participating countries includes all 38 OECD member countries and extends to traditional offshore financial havens such as the Cayman Islands and Gibraltar. However, the absence of major markets such as China, Hong Kong, the UAE, Russia, Turkey, and India, along with the non-participation of nearly all African countries (except South Africa), and the participation of only two Latin American countries (Chile and Brazil), weakens CARF's global impact. The future global framework for crypto asset tax transparency still has a long way to go.

Attitudes of Relevant Parties

The countries committing to implement CARF do not hold a uniform attitude. The long-established financial power, the United Kingdom, holds a high opinion of CARF, with the UK Treasury previously estimating that crypto tax evasion could be as high as 55%-95%, believing that participation in CARF provides a good international environment for reasonable regulation of crypto taxes. However, the attitude of third-world countries towards CARF is mixed. Among supporters, the Chilean Minister of Finance stated that CARF would help maintain the ongoing progress of global fiscal transparency, and the head of auditing indicated that this automatic information exchange accelerates the auditing process and improves auditing efficiency, while emphasizing the need to properly handle and protect financial consumer data. South Africa is the only African country to join CARF, with relevant officials stating that signing the agreement helps South Africa keep pace with the rapid development of the crypto asset market. Some countries have not reached a consensus on the implementation of CARF, such as Brazil, which, despite being a contracting party, has recently seen extensive debate in its Congress regarding CARF. Opponents argue that implementing CARF would reduce the efficiency of tax litigation and significantly increase related administrative costs; the implementation of CARF indicates the government's intention to obtain information and expand control over the movement of crypto assets. However, the attitudes of countries towards CARF reflect differing views. Some commentators point out that the rules of CARF should be translated into domestic tax legislation, and to adapt to CARF, many companies' tax compliance procedures will need to be adjusted in the future, potentially increasing operational costs temporarily, as meeting these standards will bring new requirements, and these costs may be passed on to suppliers and charged to consumers. The implementation of CARF will also have related impacts on exchanges and traders. For exchanges, CARF requires them to report cryptocurrency transactions. On the other hand, during a bull market, billions of dollars flow from the traditional financial system into cryptocurrency exchanges and platforms, and traditional financial institutions want to stop the trend of capital fleeing to crypto platforms—some banks began offering their own internal cryptocurrency trading services in 2021, coincidentally, traditional financial institutions do not need to comply with the CARF standards in this framework. The requirement for exchanges and platforms to track cryptocurrency transactions further indicates that CARF may impact the development of centralized cryptocurrency exchanges and platforms, potentially benefiting decentralized alternatives like Dex. CARF will also affect traders, as its impact on exchanges will be transmitted to end traders, meaning that the cryptocurrency transactions reported by exchanges will become information for taxation by various countries, thereby impacting end cryptocurrency traders' tax obligations.

Future Crypto Tax Transparency Framework

Although CARF represents an important international effort to standardize crypto taxation, it is not the only agreement; other international agreements involving the exchange of tax information related to cryptocurrencies are also advancing. In October of this year, the EU Council officially passed DAC8. DAC8 is a cryptocurrency tax reporting rule that grants tax authorities jurisdiction to monitor and assess every cryptocurrency transaction within any EU member state. Analysis from CoinBase points out that the legal provisions of DAC8 regarding cryptocurrencies complement the anti-money laundering rules under the MiCA framework. DAC8 requires all cryptocurrency service providers located in the EU to report transactions of EU customers to support anti-money laundering and anti-tax evasion efforts. In addition to restricting crypto assets, DAC8 also applies to financial institutions issuing central bank digital currencies (CBDCs). As an international regulatory framework, CARF and DAC8 will not come into effect automatically but will require member countries to enact domestic laws to implement them. Based on past experience, DAC8 within the EU will be implemented quickly, but the full implementation of CARF will still take time. The convergence of CARF and DAC8 reflects the global efforts made towards regulating crypto taxation.