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Crypto, Banking Reps Critical of OECD Proposals

Tim Shaw  

Tim Shaw  

New requirements under the Organization for Economic Co-operation and Development’s proposed amendments to its reporting regime and new crypto framework should be more narrowly tailored, according to representatives from the crypto and banking industries.

The OECD released on March 22 a public consultation document outlining its global tax transparency agenda to promote the reporting and exchange of information between countries regarding so-called crypto-assets and financial account information. The OECD defines a crypto-asset in its Crypto-Asset Reporting Framework (CARF) as an asset created using cryptographic technology that can be “transferred and held without interacting with traditional financial intermediaries and without any central administrator having full visibility on” transactions.

This is notably distinct from the Financial Action Task Force’s (FATF) definition of a virtual asset, which was characterized as a “digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.”

Lawrence Zlatkin, vice president of tax at popular crypto exchange Coinbase said that the “overly broad” definition of crypto-asset departs from FATF and potentially includes assets other than for payment and investment. He spoke May 23 on a panel at a hybrid event hosted by the OECD in Paris. The meeting served to explore questions raised in the public consultation document following the close of the public comment period.

“I don’t know why we should have different rules for FATF and for CARF,” Zlatkin said. “It just creates more complexity for people and persons who have to implement these rules.”

Under the CARF, four types of transactions would be considered relevant and, therefore, reportable:

  1. Exchanges between crypto-assets and fiat currencies;
  2. Exchanges between one or more crypto-assets;
  3. Specified retail payment transactions; and
  4. Transfers of crypto-assets.

The public consultation document outlines due diligence procedures and the scope of crypto-assets involved, as well as the reporting nexus.

There has been pushback on the CARF’s reporting requirements, including comments arguing that compliance would be “impossible” or that certain data is unattainable, according to Corné Plooy, a software developer at Bitonic. Plooy said at a panel at Monday’s OECD meeting that these comments are the result of the framework’s “misunderstandings” of cryptographic technology, also agreeing that the scope of the CARF is “very broad.”

The document also lays out proposals for changes to the OECD’s common reporting standard (CRS), originally adopted in 2014. Over 100 jurisdictions have since implemented the CRS to participate in the automatic exchange of identifying information of financial account holders and their balances.

Chief among amendments to the CRS is an expansion to include digital (or e-money) products and Central Bank Digital Currencies. The modified CRS would also include derivative contracts referencing crypto-assets in the definition of financial assets. This would, in theory, allow financial institutions to “apply the same due diligence and reporting procedures to derivatives referencing different types of assets,” according to the OECD proposal. Currently, the OECD is considering a $10,000 de minimis threshold with respect to e-money products but is not married to that figure.

Mark Huyan, executive director of tax at J.P. Morgan, was unconvinced that more data for the sake of having more data is the solution for encouraging compliance and curtailing tax evasion. “Maybe there’s things that we can do to better analyze the information that [jurisdictions] are already getting to exclude the useless information from the useful to filter it.” Like others across the four OECD meeting panels, Huyan suggested that changes not bog down entities with unnecessary administrative burdens.

“Any changes in addition to the CRS should be proportionate and should be considered if there is an added value,” said Roger Kaiser, senior policy advisor of Tax and Compliance at the European Banking Federation, on the same panel as Huyan.

 

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