CARF was selected as one of the top ten tax events in the world in 2023. How to understand the dynamics of Chinese policies?
Author: TaxDAO Recently, the 2023 Annual Top Ten Tax News in China and the Top Ten Global Tax Events press conference, jointly organized by the China International Taxation Research Association, China Taxation News, and China Taxation Magazine, was held in Beijing. Among them, the OECD's release of the "International Standard for Automatic Exchange of Tax Information: Crypto-Asset Reporting Framework and 2023 Revised Common Reporting Standard" was selected as one of the top ten global tax events.
It is reported that on June 8, 2023, the OECD Forum on Tax Transparency and Information Exchange (Global Forum) released the "International Standard for Automatic Exchange of Tax Information: Crypto-Asset Reporting Framework and 2023 Revised Common Reporting Standard," which includes the "Crypto-Asset Reporting Framework" (CARF), the "2023 Revised Common Reporting Standard" (CRS), relevant comments, and the information exchange framework, collectively forming the international standard for automatic exchange of tax information. The "Crypto-Asset Reporting Framework" specifies the automatic exchange of tax information related to crypto assets, while the "2023 Revised Common Reporting Standard" includes certain electronic currency products and central bank digital currencies. According to a press release from the OECD on November 10, 2023, 48 countries and regions plan to implement the "Crypto-Asset Reporting Framework" by 2027.
Although China is not within the scope of CARF, its attention to CARF reflects the country's concern for international tax transparency, which also conveys China's potential interest in industry development and emphasis on international tax cooperation. Firstly, the anonymity and borderless nature of crypto assets indeed pose significant challenges to the global tax system. This emerging form of digital asset, particularly its global liquidity and difficult traceability, raises new requirements for addressing base erosion and profit shifting (BEPS) issues. China's focus on CARF partly stems from its recognition of this trend and seeks to address the issue through international cooperation and information sharing. Furthermore, the rapid development of the crypto asset sector presents new challenges to domestic tax policies and regulatory frameworks, which may require adjustments to current tax policies. New regulations may even be formulated by drawing on CARF. Lastly, China's attention to CARF also indicates a willingness to strengthen international tax cooperation. In the context of global economic integration, it is challenging for individual countries to independently address the tax challenges posed by crypto assets. Therefore, cooperation with other countries and international organizations (especially in information exchange and tax policy coordination) will play a crucial role in addressing tax challenges.
The list of CARF participating countries extends beyond the 38 OECD member countries, including offshore financial havens such as the Cayman Islands and Gibraltar. However, the absence of major markets such as China, Russia, India, the UAE, and Turkey, as well as the non-participation of almost all African countries, weakens CARF's global impact. The differing attitudes of participating countries further complicate the situation; established financial powers like the UK highly praise CARF, believing it contributes to the rationality of international regulation, while attitudes from third-world countries towards CARF are mixed. The implementation of CARF indicates the government's intention to obtain information and expand control over the movement of crypto assets.
CARF requires the reporting of cryptocurrency transactions, which has far-reaching implications for exchanges and traders. Centralized exchanges may be affected, while this may benefit decentralized alternatives like Dex. For traders, cryptocurrency transactions reported by exchanges will become information for taxation by various countries, impacting end cryptocurrency traders' tax obligations. CARF represents an international effort to standardize cryptocurrency taxation, but it is not the only agreement. Meanwhile, the EU's DAC8 also complements CARF, emphasizing anti-money laundering measures and being more applicable to central bank digital currency (CBDC) transactions.
The intersection of CARF and DAC8 reflects a global commitment to regulating cryptocurrency taxation. The implementation of these frameworks in domestic law requires joint efforts from all member countries. As these frameworks address the complexities of the global financial system, they become key tools in promoting tax transparency in the cryptocurrency sector. The implementation of CARF will enhance tax transparency and compliance in the crypto asset industry, strengthen market stability, and increase investor confidence in the market. For future cryptocurrency traders, it is essential to understand and comply with CARF requirements and the tax rules of their jurisdictions to avoid unnecessary risks and penalties, while also paying attention to market dynamics and opportunities to plan and manage crypto asset investments effectively.
For more information on CARF, you can refer to TaxDAO's previous in-depth analysis titled “CARF: A New Era of Global Cryptocurrency Tax Regulation” and “48 Countries Commit to Implement CARF: Attitudes and Future Framework for Crypto Tax Transparency”.
Here are the full texts of the 2023 "Top Ten Tax Events".
1. The Third "Belt and Road" International Cooperation Summit Forum Successfully Held and Emphasizes Strengthening Multilateral Cooperation Platforms in Taxation and Other Fields
On October 18, 2023, the Third "Belt and Road" International Cooperation Summit Forum was successfully held in Beijing, with the theme "Building a High-Quality Belt and Road Together for Common Development and Prosperity." Chinese President Xi Jinping attended the forum's opening ceremony and delivered a keynote speech titled "Building an Open, Inclusive, Interconnected, and Commonly Developed World," announcing China's support for eight actions for high-quality Belt and Road construction, including strengthening multilateral cooperation platforms in energy, taxation, finance, and other fields with countries participating in the Belt and Road Initiative, thereby clarifying new directions, opening new visions, and injecting new momentum into the Belt and Road construction. Since the proposal of the Belt and Road Initiative ten years ago, over 150 countries and more than 30 international organizations have signed relevant cooperation documents, leading to the establishment of numerous projects and creating a path toward common development, opportunities, and prosperity, making it the most popular international public good and the largest international cooperation platform in today's world.
2. The Fourth "Belt and Road" Tax Administration Cooperation Forum Reaches and Releases Six Achievements
From September 11 to 13, 2023, the Fourth "Belt and Road" Tax Administration Cooperation Forum was held in Georgia, with over 300 representatives from tax authorities of 32 countries and regions, 10 international organizations, and some multinational enterprises engaging in in-depth discussions on topics such as optimizing the tax business environment, resulting in the adoption and release of six achievements, including the "Joint Statement of the Fourth Belt and Road Tax Administration Cooperation Forum" and the "Action Plan for Optimizing the Tax Business Environment (2023-2025)." Over the past ten years, the Chinese tax authorities have continuously supported tax services for the Belt and Road Initiative, advocating for the establishment of a tax administration cooperation mechanism for the Belt and Road, and have held four "Belt and Road" tax administration cooperation forums, providing a practical platform for communication and exchange among relevant parties.
3. The United Nations General Assembly Passes the Resolution on "Promoting Inclusive and Effective International Tax Cooperation at the United Nations"
On November 22, 2023, the 78th United Nations General Assembly's Economic and Financial Committee (Second Committee) passed the draft resolution "Promoting Inclusive and Effective International Tax Cooperation at the United Nations," proposed by Nigeria on behalf of the African Group, with 125 votes in favor, 48 against, and 9 abstentions. On December 22, the United Nations General Assembly adopted the resolution with 111 votes in favor, 46 against, and 10 abstentions. The resolution decides to develop a United Nations framework convention on international tax cooperation to strengthen international tax cooperation and make it more inclusive and effective. It also establishes a special intergovernmental committee led by member states with no limit on membership to draft the scope of the United Nations framework convention on international tax cooperation and requires the committee to submit a report on related issues to the 79th United Nations General Assembly.
4. The Organization for Economic Cooperation and Development (OECD) Releases the "Outcome Statement on Addressing the Tax Challenges of Economic Digitalization: Two-Pillar Solution"
On July 11, 2023, the 138 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached the "Outcome Statement on Addressing the Tax Challenges of Economic Digitalization: Two-Pillar Solution." This statement includes a summary of the series of outcomes formed for the design of the two-pillar solution, outstanding issues, follow-up work plans, and commitments to defer the implementation of the digital services tax. Subsequently, the OECD released a series of documents, including the draft text and explanatory statement of the "Multilateral Convention to Implement Amount A of Pillar One," "Global Anti-Base Erosion Rules Legislative Template Administration Guidelines," "Taxable Rules," and "Multilateral Convention to Facilitate the Implementation of Taxable Rules of Pillar Two" and its explanatory statement, continuously making progress in the design and implementation of the two-pillar solution. On December 18, the OECD announced a postponement of work related to Amount A of Pillar One, planning to complete negotiations on the "Multilateral Convention to Implement Amount A of Pillar One" by the end of March 2024 and hold a signing ceremony for the convention by the end of June 2024.
5. High-Level International Seminar on Digitalization of Tax Administration Reaches Consensus on Promoting Digital Transformation
From October 19 to 20, 2023, the High-Level International Seminar on Digitalization of Tax Administration, hosted by the State Taxation Administration of China, was held in Beijing. Representatives from tax authorities of 20 countries across Asia, Africa, Europe, the Americas, and Oceania, as well as representatives from six international organizations and some academic institutions and multinational enterprises, engaged in in-depth exchanges on topics such as the digital transformation of tax administration, innovation in taxpayer services, and optimizing the tax business environment, reaching multiple consensuses. Participants expressed that in-depth exchanges and sharing of practical experiences among countries are crucial for achieving digital transformation goals and will further promote the construction of multilateral tax cooperation platforms, working together to build a closer and higher-quality international tax cooperation system. Wang Jun, then Director of the State Taxation Administration of China, attended the meeting and delivered a keynote speech on advancing the digital transformation and upgrading of tax administration.
6. The United Nations Releases the "Transfer Pricing Guidelines for Carbon Offsetting and Carbon Credits"
On October 17, 2023, the 27th meeting of the United Nations International Cooperation Expert Committee approved the "Transfer Pricing Guidelines for Carbon Offsetting and Carbon Credits." This is the first guideline to assist countries in conducting transfer pricing analysis for inter-company carbon credit transactions, addressing major issues such as how carbon credits are generated and traded, and explaining potential transfer pricing impacts, which can be used to prevent double taxation and tax evasion. The guidelines include: regulatory frameworks, cap-and-trade systems, baseline and credit programs, significance for developing countries, importance of transfer pricing, project value chain analysis (including three case studies—reforestation projects, clean cookstoves, and emissions reduction projects in the extractive industry), transfer of carbon credits, purchasing carbon credits, trading carbon allowances, pricing of carbon credits, and trading and retirement of carbon credits.
7. OECD Releases the "International Standard for Automatic Exchange of Tax Information: Crypto-Asset Reporting Framework and 2023 Revised Common Reporting Standard"
On June 8, 2023, the OECD Forum on Tax Transparency and Information Exchange (Global Forum) released the "International Standard for Automatic Exchange of Tax Information: Crypto-Asset Reporting Framework and 2023 Revised Common Reporting Standard," which includes the "Crypto-Asset Reporting Framework" (CARF), the "2023 Revised Common Reporting Standard" (CRS), relevant comments, and the information exchange framework, collectively forming the international standard for automatic exchange of tax information. The "Crypto-Asset Reporting Framework" specifies the automatic exchange of tax information related to crypto assets, while the "2023 Revised Common Reporting Standard" includes certain electronic currency products and central bank digital currencies. According to a press release from the OECD on November 10, 2023, 48 countries and regions plan to implement the "Crypto-Asset Reporting Framework" by 2027.
8. The EU Carbon Border Adjustment Mechanism Officially Launches
On October 1, 2023, the first phase of the EU Carbon Border Adjustment Mechanism (CBAM, commonly known as the "EU Carbon Tax") was launched. The transition period is from October 1, 2023, to December 31, 2025, with formal implementation starting on January 1, 2026, and full implementation by 2034. During the transition period, importers in six carbon-intensive industrial sectors—steel, cement, fertilizers, aluminum, electricity generation, and hydrogen—only need to report their carbon emissions to EU authorities without needing to purchase CBAM certificates. Starting January 1, 2026, importers will be required to report the greenhouse gas emissions contained in imported goods annually and purchase the corresponding number of CBAM certificates. The European Commission released the transitional implementation regulations in August 2023, detailing the reporting obligations and information requirements for importers regarding applicable CBAM products, as well as temporary methods for calculating the embedded emissions in the production of CBAM products.
9. The Regional Comprehensive Economic Partnership (RCEP) Fully Comes into Effect
On June 2, 2023, the Regional Comprehensive Economic Partnership (RCEP) came into effect for the Philippines, the last country to implement RCEP, thus marking its full effectiveness. RCEP was jointly signed by China, Japan, South Korea, Australia, New Zealand, and the 10 ASEAN countries on November 15, 2020. On January 1, 2022, RCEP officially came into effect for Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, Australia, China, Japan, and New Zealand; on February 1, 2022, for South Korea; on March 18, 2022, for Malaysia; on May 1, 2022, for Myanmar; on January 2, 2023, for Indonesia; and on June 2, 2023, for the Philippines.
10. The EU Tax Observatory Releases the "2024 Global Tax Evasion Report"
On October 23, 2023, the EU Tax Observatory released the "2024 Global Tax Evasion Report" for the first time, emphasizing that offshore tax evasion still exists due to non-compliance by offshore financial institutions and restrictions on automatic exchange of banking information. The report calls for strengthening the collection of a global minimum tax on multinational corporations. If a 2% minimum wealth tax were levied on approximately 2,700 of the world's wealthiest individuals, it is estimated to generate an additional $250 billion in tax revenue annually. The report points out that billionaires often use means such as setting up "shell companies" to transfer assets and hide wealth, and they pay the lowest proportion of personal income tax relative to their personal assets compared to all other income groups.