48 countries cooperate to combat crypto tax evasion

According to the UK’s statement, the final agreement on the CARF was reached in March 2023, after two years of negotiations. The country leads the global commitment to combat offshore crypto tax evasion, requiring crypto platforms to share taxpayer information with authorities. This intends to ensure that tax authorities can exchange information to enforce tax compliance. The 2027 deadline also applies to the amendments in the Common Reporting Standard (CRD), with the countries intending to transpose the CARF into domestic law and activating exchange agreements in time for exchanges to commence, subject to national legislative procedures.

Some of the countries that signed the agreement include Ireland, Austria, France, Germany, Italy, Croatia, Japan, South Korea, the US, and Canada, while China, Russia, Turkey, and India did not, even if they have a considerable interest in crypto. Out of all the African nations, only South Africa committed to the transparency standard. The statement also underlined that the current countries invite other jurisdictions to join the agreement to enhance the global system of automatic information exchange which eliminates tax evasion. 

As per the International Monetary Fund’s research, crypto assets that can be leveraged as payment instruments increased to more than 10,000 variants since the launch of Bitcoin in 2009. The speed at which they developed and the pseudonymity they could offer affected tax systems, leaving them with the need to eliminate the challenges. Thoughts on crypto assets are varied, with some seeing the release of financial transactions from government oversight as an advantage. However, crypto assets are also considered as a front for crime, scams, and gambling, while also being increasingly volatile. For example, Bitcoin increased from USD 200 in 2013 to approximately USD 70,000 in 2021 before falling to around USD 29,000 currently.

When faced with regulating crypto, authorities encounter multiple issues, including the classification of crypto assets between property or currency. Capital gains from when crypto is sold for profit should be taxed as any other asset, while purchases made with crypto should be subject to the same sales or value-added taxes (VAT) that would be instituted for tax transactions. The pseudonymity of crypto poses difficulties as well, as transactions leverage public addresses that are problematic for linking with individuals or companies, making tax evasion easier. Considering the challenges and risks, authorities need to develop clear, coherent, and effective frameworks for taxing cryptocurrencies. 

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