The OECD Cryptoasset Reporting Framework (CARF) is the new international tax transparency regime for the automatic exchange of information (AEOI) on transactions in cryptoassets. It was developed by the OECD to address the lack of visibility of such transactions by a central administrator and the lack of involvement of traditional financial intermediaries to report such transactions. The OECD has also carried out a review of the Common Reporting Standard (CRS), the global standard for automatic exchange of financial account information, and expanded the scope to include specified electronic money products and central bank digital currencies with more detailed reporting requirements also introduced.
The rules and commentary for both the CARF and the CRS have already been agreed at the international level to ensure consistency across jurisdictions. However, the OECD proposals contain optional elements and lack detail on the practical implementation, so the UK Government has launched a consultation to seek views on the UK implementation of these from 1 January 2026. There is acknowledgment in the consultation document that the measures will have significant impact on the reporting entities in scope, in particular financial institutions and cryptoasset service providers (both entities and individuals effectuating exchange transactions as a business), with both one-off and ongoing costs. Nevertheless, the additional proposals are far-reaching, in particular:
- The Government proposes changes to the penalty regime for CARF and for CRS to move to a per account penalty to align with the latest OECD initiative implemented – the Digital Platforms information regime. These changes could result in more punitive penalties. The Government is also seeking views on what additional measure would be appropriate to ensure that valid self-certifications are always collected for crypto users;
- The UK also intends to introduce a mandatory registration requirement so that all entities within the CRS definition of Reporting Financial Institution will be required to register with HMRC’s AEOI service, irrespective of whether or not they have information to report (although UK financial institutions will not be required to make annual nil returns); and
- The consultation seeks views on a potential extension of the CARF and CRS to include reporting on UK resident taxpayers by UK service providers, citing as advantages the streamlining of third-party reporting requirements, a more efficient use of HMRC and taxpayer time and an improved picture of risk for HMRC. Hopefully, this would allow those that reported domestic accounts for CRS to elect out of the Bank and Building Society Interest Returns (BBSI) regime; however, the interesting question is whether those that currently only undertake BBSI reporting can continue with that approach or have to change (at least for a transition period). However, the consultation seeks views on what impacts this would have on reporting entities in scope and on what regulatory or legal issues will need further discussion. Whilst, for the CARF and the CRS, the Government is seeking views only on the specific proposal (rather than seeking views on alternative proposals), with respect to the domestic CARF and CRS the consultation is setting out objectives and identifying options.
The consultation is open for response until 29 May 2024. For further information on this, please speak to the authors or your usual KPMG in the UK Tax contact.
