With the increasing prevalence of crypto assets, tax authorities around the world are facing a challenge: transactions often lack transparency and traceability. The Crypto Asset Reporting Framework (CARF), developed by the OECD and enshrined in European Union law, aims to close this gap. CARF will come into force in 2026, with the first reporting scheduled for 2027. This set of rules marks a significant step toward internationally uniform tax transparency in the crypto market.
Background and development
The CARF is based on experience with the Common Reporting Standard (CRS), which has already been introduced for traditional financial investments. CRS requires financial institutions to report cross-border investment income. CARF now applies this principle to crypto assets. The OECD published the first draft in 2022, followed by approval from EU finance ministers in 2023, and national implementation is expected to be completed by the end of 2025. This will make CARF an integral part of the tax architecture of many countries.
How CARF works
The functioning of CARF can be illustrated with an example: An investor with tax residence in Germany trades on a crypto exchange based in Austria. Once CARF comes into force, the Austrian exchange must report the transactions to the Austrian tax authorities, which then forward the data to the German tax authorities. In this way, the competent authority in the country of residence receives complete information about crypto transactions and can ensure tax collection.
International dimension
It is particularly noteworthy that, in addition to the EU member states, numerous other countries such as Switzerland, the United Kingdom, and the US have also announced their intention to implement CARF. This is a first for the US, as it had not previously adopted the CRS. This creates the first global framework that also includes the major financial markets. This increases the likelihood that tax avoidance through relocation will become significantly more difficult.
Requirements for reporting
For a transaction to fall under CARF, four conditions must be met. First, it must involve a reportable crypto asset. Second, a crypto service provider must be involved, such as an exchange or broker. Third, it must be a reportable transaction, such as the exchange of crypto assets for fiat currencies or other tokens, but also transfers to private wallets. Fourth, a reportable user must be involved, i.e., a natural or legal person with tax residence in a member state. Certain institutions, such as central banks or international organizations, are exempt from the reporting requirement.
Scope of crypto assets covered
The definition of crypto assets within the framework of CARF is broad. It includes cryptocurrencies, utility tokens, and tradable NFTs. E-money tokens are generally excluded. In the case of security tokens, there may be overlaps with existing regulations, meaning that some of them are already covered by other regulations. The broad definition is intended to ensure that innovative forms of digital assets are included in tax transparency at an early stage.
Scope of information to be reported
The data to be reported is extensive. In addition to the type of crypto asset and the aggregated transaction amounts, the number of transactions and movements per user must also be recorded. In addition, personal information such as name, address, and tax residence is necessary to enable allocation by the tax authorities. This leads to a significant expansion of data collection obligations for crypto service providers.
Challenges for crypto service providers
For crypto exchanges and other providers, the new obligations pose considerable challenges. From January 1, 2026, they must be able to record and report all transactions in detail. Technical adjustments to the systems are absolutely essential. In addition, there is an obligation to identify all users. Existing customers must be confirmed by self-disclosure by the end of 2026, while new customers are identified during onboarding. For providers, this means high organizational and technical costs.
Sanctions for violations
Compliance with CARF requirements is not voluntary. In many countries, severe penalties are imposed if providers fail to meet their obligations. In Austria, fines of up to €200,000 can be imposed. This makes it clear that countries take enforcement of the framework seriously and do not consider violations to be a trivial offense.
Outlook
The Crypto-Asset Reporting Framework will bring about lasting change in the crypto industry. On the one hand, it strengthens the confidence of financial administrations and facilitates tax collection. On the other hand, it increases the workload for crypto service providers and could push smaller providers to the limits of their capacity. For investors, CARF means that tax obligations will hardly remain hidden in the future. In the long term, the framework will help to integrate cryptocurrencies more closely into the regulated financial system and increase acceptance among institutions and governments.
Related article: Five insights from the practice of a regulated CASP
What’s your Reaction?
+1
0
+1
0
+1
0
+1
0
+1
0
+1
0
+1
0
