The Organisation for Economic Cooperation and Development (OECD) recently came out with its crypto-asset reporting framework (CARF), which signals the legal acceptance of cryptos at a global level, leaving open windows for jurisdictions to experiment in the crypto-space by forming their own regulations.
The framework broadens the common reporting standard that requires jurisdictions to exchange information with each other.
Till now, transactions in crypto assets have been decentralised, leaving them largely anonymous and difficult to track by regulators.
CARF guidance aims to enhance transparency, identify transactions, and bring them under the respective tax jurisdiction.
As governments globally struggle to create policy for the crypto market, CARF will help countries gain visibility over the transactions. It would enable governments to bring investors, exchanges and intermediaries under a mechanism that ensures identification of all participants by asking for the personal information of directors of companies, details of crypto transactions such as aggregate gross amount received, aggregate fair market value and number of units of each crypto asset, and so on. In essence, all crypto players around the world would be required to take off their masks of anonymity and identify themselves to the regulators, thereby destroying blockchain technology’s foundational principle of inconspicuousness.
India was anyway ahead of the curve on crypto matters. Finance Budget 2022 had introduced a tax on crypto assets with a maximum marginal rate of 30 per cent plus applicable surcharge and a cess on transactions in crypto assets, in addition to a withholding tax requirement of 1 per cent on the gross value of transactions. Such a withholding obligation requires reporting personal information of investors such as name, PAN, and value and quantum of transactions, irrespective of whether the consideration is in cash, or partly in cash and partly in consideration for another virtual digital asset.
Although the above announcement brought in provisions for taxing crypto assets at India level, there has been ambiguity over the legality and taxation of cross-border transactions — there is no specific article under the Double Taxation Avoidance Agreement covering taxation of crypto assets, thereby posing a challenge to investors and exchanges on ways to analyse the tax impact when such transactions involve multiple tax jurisdictions. CARF will help bring all players in this market under one roof, as the framework would put the onus on crypto exchanges and intermediaries to report transactions to domestic regulators.
The RBI’s Central Bank Digital Currency (CBDC) pilot went live recently at select banks for the wholesale segment in India and was well received. CBDC aims to complement the current forms of money, and not replace them, by ideating an additional payment area for users.
(The writer is Partner at Nangia Andersen LLP)