Insight

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Fabrice Chatelain, Product Director Tax at Regnology

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CARF, DAC 8 and CRS 2.0 - improving global tax transparency in response to the uptick of crypto-assets

In this Q&A session, Fabrice Chatelain, Product Director Tax at Regnology, delves into the latest developments shaping global tax transparency and reporting standards within the realm of crypto-assets.

He navigates through the intricacies of Crypto-Asset Reporting Framework (CARF) and DAC 8, and key changes of CRS 2.0. He also provides a comprehensive understanding of how these frameworks are reshaping tax reporting for institutions, especially players dealing with crypto assets and compliance strategies in the ever-evolving world of tax reporting.

Give us a high-level summary of the CARF/DAC8 and the CRS 2.0. 

To address the booming growth of the Crypto-Asset market, the OECD established CARF in August 2022. This framework not only streamlines reporting procedures but also leverages anti-money laundering regulations, and fosters global tax transparency. 

With the introduction of CARF, certain changes have been made to the Common Reporting Standard (CRS) to ensure an efficient interaction between the two frameworks while maintaining operational flexibility for Reporting Financial Institutions. The industry is used to refer to the changes in CRS under the name “CRS 2.0”.  

And DAC8, the EU's version of CARF, aims to enhance tax transparency by tracking transactions managed by EU players and involving crypto assets. 

Which entities are affected by CARF or DAC8 regulations? 

CARF significantly impacts various entities within the global financial landscape, including:  

  • Crypto-Asset Service Providers: Exchanges and wallet providers dealing with crypto-assets are subject to CARF regulations. These intermediaries play a crucial role in reporting and data collection.  
  • Some entities of banks and other financial institutions may also be impacted.  

Entities that, as a business, provide services to exchange crypto-assets against other crypto-assets, or for fiat currencies, must apply the due diligence procedures to identify their customers, and then report the aggregate values of the exchanges and transfers for such customers on an annual basis.

CARF, DAC8 and CRS 2.0 present a significant shift for FIs/RCASPS. It is crucial to dedicate time now to prepare data, streamline processes, and enhance systems to ensure compliance with the reporting requirements.

Fabrice Chatelain Product Director Tax
Regnology

What are the key changes to the CRS – under CRS 2.0?  

CRS has expanded its scope to include new digital financial products. These products serve as credible alternatives to traditional accounts subject to CRS reporting. Specifically, the CRS now covers Specified Electronic Money Products and Central Bank Digital Currencies. Additionally, changes have been made to the definitions of Financial Asset and Investment Entity to ensure that derivatives referencing Crypto-Assets and held in Custodial Accounts, as well as Investment Entities investing in Crypto-Assets, fall under CRS reporting.

The CRS now also facilitates efficient interaction with CARF, minimizing duplicative reporting while maintaining operational flexibility for Reporting Financial Institutions under both frameworks. Moreover, the amendments to CRS improve reporting outcomes by introducing detailed requirements, strengthening due diligence procedures, and creating new categories. These changes enhance consistency and transparency in tax information exchange. 

For a sample of changes to the  CRS - click here.

What is the timeline for the implementation of CARF, DAC8, and CRS 2.0? 
DAC8

DAC8 has been officially adopted, marking a significant step forward in tax transparency regulations. All EU Member States are now tasked with incorporating this legislation into their national laws by the end of 2025. Crypto-assets service providers will need to adhere to the reporting requirements outlined in DAC8 starting from January 1, 2026. The initial year of DAC8 implementation is set for 2026, with reporting obligations for that year to be fulfilled by January 31, 2027.

CARF

The first reporting is anticipated to occur in 2027.

Change to CRS – CRS2.0

The implementation of changes to the CRS will vary across countries as they transpose it into their local regulations. While the timeline may mirror that of CARF, the adoption of these changes can be quite unique to each country, with some embracing them early on while others lag behind. Additionally, some countries may seize the opportunity presented by these changes to incorporate further adjustments related to CRS and their specific local requirements. 

What advice can you offer market players to manage effectively the new requirements?

Here are some topics to consider to effectively manage the new requirements:

 

1 | Understand the requirements

You need to understand thoroughly the requirements of CARF, DAC8 and changes in CRS.

 

3 | Assess your business and data

→ Carry out an assessment to determine whether your business is qualified as a Crypto Asset Service Provider and falls under the scope of DAC8 / CARF.  

→ If you already report for CRS today, review your processes and solutions to get ready for “CRS 2.0”.  

→ In both cases, you need to review your data and IT systems to ensure you can report when the reporting obligations will start.

 

5 | Ensure compliance

Ensure you have budgeted enough to implement these enhancements. Compliance with these new regulations is crucial to avoid penalties. 

2 | Identify your obligations

Identify your obligations under the new legislation, and the impact on your day-to-day operations. 

 

4 | Prepare process and system enhancements

CARF, DAC8 and CRS 2.0 could require significant system and process development for FIs/RCASPS to implement. Therefore, it is advisable to prepare for the control, process, and system enhancements you would need to implement to comply with the regulatory changes.

 

 

 

6 | Stay updated

Keep abreast of any changes or updates to these regulations. The crypto-asset sector is fast-changing, and regulations are likely to evolve as well. 

 

 

How can Regnology help the market players to comply? 

Regnology serves both sides of the industry spanning from traditional financial institutions and crypto brokers to international tax authorities. Our tax reporting solution covers multiple tax regimes, including FATCA, CRS/AEOI, QI/QDD, TRACE, CESOP, Domestic, DAC6/MDR with the latest addition of the CARF/DAC8 and extension of the CRS and ongoing changes introduced by the OECD. 

We facilitate reporting to tax authorities and multiple domestic regimes in 140 countries, offering advanced features like automated corrections, reconciliation, and secure submission processes. Our cloud-based technology ensures efficient and accurate delivery of ever-evolving tax information, supporting compliance efforts across jurisdictions. 

We collaborate closely with the big 4 firms to remain abreast of regulatory updates and proactively integrate these changes into our solution. 

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