OECD releases the Crypto-Asset Reporting Framework (CARF) XML Schema

On 2nd October 2024, the OECD released the XML Schemas and User Guides to support the transmission of information between tax authorities pursuant to the Crypto-Asset Reporting Framework (CARF) and the amended Common Reporting Standard (CRS).

The CARF XML Schema and User Guide and the CRS XML Schema and User Guide reflect the reporting requirements of the CARF and the amended CRS that were approved by the OECD in 2023 and subsequently endorsed by the G20 and the Global Forum as international standards. First exchanges under both the CARF and the amended CRS are expected to commence in 2027 for the 2026 reporting year.

INTRODUCTION TO CARF

The Crypto-Asset Reporting Framework (CARF), established by the OECD, provides a standardized approach for jurisdictions to automatically exchange tax-relevant information on crypto-assets. CARF ensures that tax authorities have the necessary tools to oversee crypto-asset transactions, thereby reducing the potential for tax evasion.

This executive summary outlines the obligations, reporting requirements, and implementation measures for entities subject to CARF, focusing on how they can meet compliance standards effectively.

The framework was approved in August 2024, with its implementation slated to begin in 2026. This summary outlines obligations, reporting requirements, and necessary steps for entities to ensure compliance ahead of this deadline.

1. ENTITIES REQUIRED TO REPORT UNDER CARF

Entities required to comply with CARF fall primarily into two categories:

Reporting Crypto-Asset Service Providers (RCASPs): Entities that facilitate crypto-asset activities—such as exchanges, wallets, and other custody services—must report under CARF. These providers are responsible for gathering and submitting detailed information on reportable transactions.

Crypto-Asset Users: Both individual and entity users of crypto-assets may need to report if they conduct transactions through RCASPs or engage in significant crypto-related activities that are subject to CARF reporting. This includes large transactions, such as high-value purchases using crypto-assets.

2. REPORTING OBLIGATIONS UNDER CARF

CARF mandates that Reporting Crypto-Asset Service Providers (RCASPs) and certain users report specific transactions, including but not limited to:

Crypto-to-Crypto Transactions: Exchanges between one or more types of crypto-assets must be reported, providing details on each crypto-asset exchanged.

Crypto-to-Fiat Transactions: Exchanges where crypto-assets are converted to fiat currencies (e.g., USD, EUR) are included, requiring information on the currency type, amount, and transaction details.

Crypto Transfers: Inbound and outbound transfers of crypto-assets, including those to and from unhosted wallets (wallets not held by a provider), must be documented.

Reportable Retail Payment Transactions (RRPTs): Transactions exceeding USD 50,000 for goods or services, involving crypto-assets, must be reported to ensure transparency in high-value exchanges.

Reporting Format:

To facilitate uniform data sharing, CARF requires entities to utilize the CARF XML Schema for data submission. This format provides a standardized approach, which helps maintain consistency across jurisdictions and ensures ease of data processing.

3. IMPLEMENTATION REQUIREMENTS FOR CARF COMPLIANCE

Entities subject to CARF reporting obligations must establish robust systems to ensure compliance. Key requirements include:

Identification and Due Diligence Procedures:

Establish processes to verify the identity of crypto-asset users, including obtaining tax identification numbers (TINs), and confirming their tax residence.
Entities must implement due diligence measures to determine whether a user is subject to CARF reporting and ensure they capture all relevant identification details.

Data Collection and Recordkeeping:

RCASPs must implement data collection protocols that can capture transaction details such as transaction type, asset amounts, recipient and sender information, and the nature of each transaction (e.g., crypto-to-crypto, crypto- to-fiat).
Records should be kept securely for audit purposes, in line with jurisdictional requirements, and to facilitate corrections if needed.

XML Schema Integration and Reporting:

CARF’s XML Schema must be integrated into reporting systems. This ensures data consistency and facilitates the automatic exchange of information between jurisdictions. Thanks to our CARF software you will ensure accurate XML file generation and submission.

Our software is equipped with Error Correction Mechanisms allowing you to:

Correct inaccuracies in previously submitted data. CARF requires correction mechanisms for reporting errors, involving submission of corrected XML files that adhere to the established schema.
Regular reviews of reported data to identify discrepancies early and correct them promptly.

Privacy and Security Measures:

Compliance with CARF requires the protection of user data. Entities must ensure data encryption, secure storage, and controlled access protocols to prevent unauthorized access and data breaches.
A designated Data Protection Officer (DPO) is recommended to oversee data security practices and ensure compliance with jurisdictional privacy laws.

4. CHALLENGES IN CARF COMPLIANCE

Entities may face several challenges when implementing CARF, such as:

Data Management Complexity: CARF requires detailed information on each transaction, which can be challenging to gather and organize. Implementing sophisticated data management systems will be essential for efficient compliance.

Privacy Concerns: Entities must carefully manage and protect sensitive user data while ensuring adherence to the CARF. Adhering to local and international data privacy standards (e.g., GDPR) alongside CARF requirements can be complex but is crucial.

Technical Expertise: Ongoing training ensures that teams are equipped to handle changes in reporting standards as CARF evolves.

5. HOW CAN LABEL HELP YOU?

We can assist your organization in:

Gap Analysis and Compliance Roadmap Development: We assess your current systems against CARF requirements, identifying gaps and proposing tailored solutions to achieve compliance.

Label CARF Software – System Implementation and Data Integration: Manage all your CARF obligation with our software. We support XML Schema generation, develop data collection protocols, and configure systems to capture required data accurately to be sent to our software solution.

Training and Capacity Building: We provide training for your staff on CARF requirements, data security protocols, and XML Schema usage, ensuring they are equipped to manage ongoing compliance.

Ongoing Support and Updates: CARF regulations may evolve, and we offer ongoing support to ensure your systems remain compliant. We also assist in implementing updates as the CARF framework is refined.

Implementing CARF compliance can be complex, but with our expert services, your organization can navigate these requirements efficiently. By partnering with us, you gain access to a team that understands the intricacies of CARF and can tailor solutions that meet both your compliance needs and operational goals.

Contact us at [email protected] for more info.