With the rise in popularity of cryptoassets, international tax authorities are setting their sights on transparency in this decentralized and often opaque industry. Traditionally the dominions of anonymity, crypto-assets are increasingly under scrutiny by tax administrations to ensure compliance with tax obligations.
Many believe current transparency standards to be sufficient citing blockchain forensic tools that trace transactions. However, these do not provide clear identification of those behind transactions, making them inadequate for securing tax transparency according to Zoe Wyatt and Dion Seymour of Andersen. Additionally, the information on blockchain only reportedly reveals individual transactions, whereas a comprehensive tax liability assessment necessitates details on all transactions.
In the past, offshore bank accounts and banking secrecy were used for tax evasion as it was challenging for tax administrations to gather information outside their territory. Thanks to the introduction of the OECD’s Common Reporting Standard (CRS), offshore bank account details are now shared by over a hundred tax administrations, excluding the US. The CRS has not only improved tax compliance but also led to an 11.5% decrease in cross-border deposits in offshore financial centers.
Tax administrations are now focused on applying similar standards as the CRS to cryptoassets to bolster transparency. They are currently considering three main tax reporting standards: DAC8, the OECD’s CARF, and a proposed US regulation. DAC8 mandates Cryptoasset Service Providers (CASPs) to collect and transfer customer information and report on transaction activity. Meanwhile, the OECD’s CARF is the first standard designed for cryptoasset reporting, and the proposed US regulation requires detailed reporting of “digital assets”.
These extensive reporting obligations for CASPs mark a global push for info sharing on cryptoasset transactions. In turn, both businesses and individuals involved with crypto will bear the burden of these increasingly intricate standards. As such, CASPs must stay updated with the advances in regulatory requirements and have the necessary systems in place for compliance. For individual investors, this rise in tax transparency will mean tax administrations will have more information than before, making it more crucial than ever to stay updated with tax returns.
Emphasizing the growing importance of this issue, Wyatt and Seymour in their article, remind everyone that the message from tax authorities is clear: Cryptoassets are firmly on their radar, making it crucial for all transactions to be accurately reported.