Crypto-Asset Reporting Framework (CARF) Implementation in Asia Pacific

CARF: A Paradigm Shift for Digital Asset Companies

In a more global economy, governments and regulatory bodies are closely scrutinizing tax compliance with evolving regulations to prevent tax evasion. Over the past decade, the adoption of the Common Reporting Standard (CRS) across jurisdictions has improved compliance. However, as the digital asset industry continues to grow and gain prominence worldwide, new attention has been given to provide the necessary tools for regulatory bodies to keep up and enforce compliance.

A new tool, the Crypto-Asset Reporting Framework (CARF), has been developed by the Organisation for Economic Co-operation and Development (OECD) with a recent announcement that 48 tax jurisdictions are working together towards an automatic exchange in crypto-asset reporting. What implications does CARF have on digital asset companies in the Asia Pacific region?

CARF Implementation in Asia Pacific

On the 10th of November 2023, a joint statement was issued by 48 jurisdictions, announcing they will commit to implementing CARF by 2027. This list included the following jurisdictions for the Asia Pacific region; Australia, Japan, Korea and Singapore. These jurisdictions will need to work towards transposing CARF into their domestic law and activating exchange agreements in time for exchanges to commence by 2027, subject to national legislative procedures as applicable.

CARF implementation in the Asia Pacific region reflects the growing global efforts to combat tax evasion within the digital asset industry. Starting by 2027, digital asset exchanges in the Asia Pacific region, whom are members of OECD, are required to comply with the CARF guidelines. These guidelines aim to enhance regulatory oversight and ensure that digital asset companies collect accurate personal information, including tax identification numbers, and tax residency details from their customers. By doing so, authorities can effectively track and assess tax liabilities associated with digital asset transactions.

CARF and CRS overlap

Alongside publication of the CARF the OECD also published amendments CRS. The 2023 joint statement also noted that the signatory jurisdictions will need to implement amendments to the CRS, agreed to by the OECD, in line with the same timeline of by 2027.

CARF Implications for Digital Asset Companies

The implementation of CARF in the Asia Pacific region brings several implications for digital asset companies. Firstly, companies will need to bridge the gap between the data they currently possess, and the data required for accurate reporting. A comprehensive gap analysis of customer data should be conducted to ensure that the necessary information is collected and reported to the tax authorities accurately.

Non-compliance with CARF guidelines could result in severe consequences for digital asset companies. Individuals found guilty of false reporting face potential liabilities, while companies risk reputational damage, loss of customer trust, and hefty penalties imposed by regulatory authorities.

Enhanced Due Diligence and Reporting

Under the CARF guidelines, digital asset companies are obligated to conduct thorough due diligence on new and existing customer accounts. This includes:

• Obtaining self-certification forms for new accounts

• Conducting periodic self-certification updates for existing accounts within 12 months of CARF effective date
• And promptly updating self-certification in the event of any changes in customer circumstances within 90 days of the event.

Moreover, transactions involving high-value items, such as those exceeding USD 50,000, require additional scrutiny. Digital asset companies must exercise caution and diligently monitor these transactions to ensure compliance of CARF.

Preparing to Comply with CARF: Gap Analysis and Data Quality

The implementation of CARF marks a significant shift in regulatory norms for digital asset companies. As companies adapt to the new guidelines, it is expected that the impact will be felt over the coming years, with a particular focus on conducting gap analyses and reporting accurate data.

There are still more details to emerge; including the establishment of appropriate mechanisms to allow the automatic exchange of information, creation/adoption of the XML schema of information, and the timelines for countries to adopt and have CARF take effect.

In the Asia-Pacific region, it is recommended that companies start conducting a gap analysis to assess the data they currently possess and compare it with the data they need to report. Through enhanced due diligence and accurate reporting, the industry can contribute to a transparent and compliant ecosystem that fosters trust among stakeholders.

TAINA’s Automated Compliance Solution for CARF

CARF represents a general framework for reporting, in which each participating jurisdiction can amend and expand the requirements for reporting. The regulatory framework will only grow and evolve from this point; therefore having automated systems that can maintain compliance across jurisdictions, be adaptable to changes, and are easy to update is key to robust compliance.

TAINA’s flexible and lightweight platform collects and validates CRS Self-Certification forms in all formats, saving our clients costs and time, reducing their risk, and radically improving their customer and investor experience. We are monitoring and adopting our customer journey to seamlessly integrate with digital asset platforms and requesting/validating necessary customer information to meet CARF compliance requirements.

We would love to talk to you more about how our fully automated validation platform will help you deal with the CARF requirements. For more information get in touch or request a demo to see it in action.