Where financial activities that are relevant for tax purposes take place offshore, it is especially difficult for tax authorities from the jurisdictions in which taxpayers are resident to have visibility over the offshore income and wealth of their taxpayers to ensure that it is properly declared and taxed. This led to the development of the Common Reporting Standard (CRS), by the OECD working with G20 countries in 2014, which introduced the automatic exchange of information (AEOI) between tax authorities for tax purposes in relation to financial accounts maintained by the traditional financial sector, including information on the beneficial owners of financial accounts.
The ability for taxpayers to use crypto-assets to hide their income and wealth from the view of the tax authorities in their jurisdiction of residence and to thereby evade or avoid tax exacerbates inequalities, reduces the revenues available to governments to fund vital public services and undermines the trust of the public in the financial system and public institutions, including tax authorities. It puts into question the fairness of the system and the level playing field.
The CARF is a framework to extend AEOI between tax authorities to the crypto-asset sector. This is to ensure that tax authorities from all jurisdictions are equipped with the information they need, including information on the beneficial ownership of crypto-assets, to properly subject the income and wealth held offshore to tax, in accordance with their jurisdiction’s domestic rules. This will help all jurisdictions address inequality and fund public services.