CRS 2.0 and CARF Takeaways from the Operational Taxes for Banks Conference

Operational Taxes for Banks London conference

On the 31st of May 2023, I had the pleasure of joining industry professionals and thought leaders at the Operational Taxes for Banks London Conference, for a full day of informative panel discussions on the latest regulatory and operational tax challenges for banks.

Two highlights of mine were the very well-presented sessions on Preparing for amendments to the Common Reporting Standard (CRS) presented by Jenny Turner (UBS), Paul Worlock (NatWest), David Smith (HMRC), Martin Killer (Grant Thornton) and Chloe Tuffin (Deloitte); and the session on Towards total tax transparency? Assessing the Crypto-Asset Reporting Framework (CARF) presented by Hywel Griffith (HMRC), Corinna Hedtke (Standard Chartered), Abdullah Bhana (HM Treasury. These two noteworthy topics not only interested the audience of tax professionals and experts from across the industry, but also gave me my conference key takeaways. 

Conference Key Takeaways

• Assessing and Implementing Crypto-Asset Reporting Framework (CARF)
• Preparing for amendments to the Common Reporting Standard (CRS) - CRS 2.0

How do CARF and CRS 2.0 overlap?

Alongside publication of the CARF in 2022 the OECD also published amendments to the Common Reporting Standard (CRS 2.0), which will be implemented by Participating Jurisdictions.

As expected, there are overlaps between CARF and CRS 2.0. There are three specific ways that the CARF/CRS 2.0 seeks to address overlap:

• 1. Prevent overlap with definition of Relevant Crypto Assets at Section IV(A) (e.g., SEMP/CDBC fall only in CRS 2.0).
• 2. Mitigating overlap at Section I(G) of CRS 2.0 which turns off gross proceeds reporting under CRS where these have been reported under the CARF.
• 3. Mitigating reporting where there is an overlap, by allowing due diligence conducted for CRS 2.0 to be relied on for CARF purposes (see Section D of CARF)

Preparing for amendments to the Common Reporting Standard (CRS) - CRS 2.0

• Electronic Money Accounts are brought into scope of CRS. E-money providers will be treated as Depository Institutions.
• Scope of Depository Institutions widened to include deposit takers who are licensed as credit institutions, debt factors, trustee or fiduciary service providers, foreign exchange financers or finance lease traders.
• Scope of Investment Entities clarified to expressly include funds and collective investment vehicles.
• Central Bank Digital Currencies (“CBDC”), Crypto-Assets and derivatives referencing Crypto-Assets are defined as Financial Assets.
• Inclusion of additional data points in CRS reporting
• The holding of CBDCs on behalf of customers will be treated as Deposit Accounts. Central Banks will be treated as Reporting FIs in relation to CBDC wallets they maintain for holders of CBDCs who are not Financial Institutions, Government Entities, International Organisations or Central Banks.
• Optional classification of “Non-Reporting FI” for charities to be introduced.
• Capital Contributions Accounts will be treated as “Excluded Accounts”.
• Additional CRS due diligence requirements 
• Scope of Depository Institution broadened.

Additional CRS due diligence requirements:

• Reporting FIs who are depending on AML/KYC procedures to identify Controlling Persons of new entity accounts must ensure AML/KYC approach is consistent with 2012 FATF recommendations or substantially similar procedures.
• Exceptional due diligence requirements to temporarily determine residence of account holder and/or controlling persons where no valid self-certification obtained on opening of a new account.
• Residence of Account Holder must be established ignoring any double tax treaties tie breaker clause. Account holders must identify all tax residencies.

Additional data points in CRS reporting:

• What role the Controlling Person has in a Passive NFE, e.g., owner, beneficiary, senior managing officials, protectors, trustee, etc
• What role a Debt/Equity Interest holder has in a PMIE
• Whether the account is a new or pre-existing account
• Whether a valid self-certification has been obtained
• Whether the account is a joint account and how many joint account holders there are
• What type of Financial Account is being reported: - Custody account, Depository account, Equity interest, Debt interest and Cash Value Insurance Contract

Crypto-Asset Reporting Framework (CARF) – Refresher

Obligations of Reporting Crypto Asset Service Providers

Based on CRS due diligence and existing AML/KYC processes. Reporting CASP (CRYPTOASSET SERVICE PROVIDERS) must stop effectuating transactions if any of the following scenarios occur:

• 1. A self-certification is not provided upon establishment of a new account.
• 2. A pre-existing account holder has not provided a self-certification within 12 months.
• 3. An updated self-certification is not received within 90 days of a change in circumstances.

CARF Reporting Requirements

The Reporting requirements, describes the information on Relevant Transactions CASPs are required to report about Crypto asset Users and Controlling Persons including:

• 1. The full name of the type of Relevant Crypto asset,
• 2. Acquisitions and disposals of Relevant Crypto assets against Fiat Currency,
• 3. Acquisitions and disposals of Relevant Crypto assets against other Relevant Crypto assets,
• 4. Reportable Retail Payment Transactions; and
• 5. Other Transfers of Relevant Crypto assets to and by the Reportable User.

TAINA’s Automated Compliance Solution for FATCA, CRS and CARF

As the crypto regulatory landscape continues to evolve, and the regulatory framework will only grow from this point. Therefore, having automated systems that adapt and are easy to update is key to robust compliance. RegTech solutions and automation of processes can and does minimize the effort of introducing changes as CARF, CRS amendments and eventually the IRS Crypto regulations is implemented and evolves.  

TAINA is the market-leading, fully automated FATCA and CRS Validation Platform that is revolutionizing the way that financial institutions, crypto, and digital asset companies manage CARF and CRS compliance. TAINA’s automated compliance platform is being used at scale by the world’s largest and most sophisticated financial institutions to revolutionize their customers’ experience and compliance.  

TAINA’s flexible and lightweight platform validates tax forms including CRS Self-Certifications in all formats, saving our clients costs and time, reducing their risk, and radically improving their customer and investor experience. 

Additionally, the TAINA platform can help manage the differences in requirements by country/jurisdiction. Although both CARF and CRS represents a standard or general framework for reporting, the jurisdictions can still amend and enhance the requirements for reporting.

We would love to talk to you more about your compliance process and how our award-winning FATCA and CRS Validation platform may help you deal with the proposed CRAF Requirements and crypto tax reporting. 

For more information get in touch or request a demo to see it in action.