Crypto Assets: OECD Calls For Tax Transparency In New Proposal

Crypto assets could be exploited to undermine existing international tax transparency initiatives. And so, a new global framework is required for reporting and exchanging information on such assets, according to the OECD.

Crypto assets pose a significant risk to recent gains in global tax transparency, the Organisation for Economic Co-operation and Development said in a public consultation proposal released on Tuesday. Such assets can be potentially used for illicit activities or to evade taxes since individuals can hold them in wallets, unaffiliated with any service provider, and transfer them across jurisdictions, the paper says.

The OECD's paper is the first step in adopting a global standard for reporting crypto transactions. The G20 bloc of nations, which includes India, had asked the OECD to develop the framework.

In terms of scope of assets that need to be covered, OECD's approach seems to be along the lines of India's Finance Bill, 2022.

Both the Finance Bill and the OECD's proposal have left the window open for inclusion of new asset classes that emerge in the future.

However, the OECD intends to cover assets that operate in a functionally similar manner to crypto assets. This is a departure from India's approach. Specifically, since the language in the bill includes a virtual digital asset generated through cryptographic means or otherwise. The word "otherwise" suggests VDAs could include assets not generated via cryptographic means.

OECD says the emphasis is on use of cryptographically secured distributed ledger technology, as this is a distinguishing factor for the creation, holding and transferability of crypto assets.

Two categories of crypto assets, which pose less tax compliance risk, are proposed to be excluded:

• Closed loop crypto assets intended to be redeemed against goods or services within a clearly defined, limited setting.

• Central bank digital currencies, representing a claim in fiat currency on an issuing central bank, or monetary authority, which function similar to money held in a traditional bank account.

The proposal is to include all intermediaries facilitating exchanges between crypto assets, and crypto-assets and fiat currencies. The suggestion is to cover not only exchanges, but also other intermediaries providing exchange services, such as brokers and dealers and operators of crypto-asset ATMs.

The OECD suggests reporting transactions on an aggregate basis by type of crypto asset and distinguishing outward and inward transactions.

The framework that the OECD is developing foresees that for crypto asset-to-fiat transactions, the fiat amount paid or received is reported by intermediaries as the acquisition amount or gross proceeds.

For crypto-to-crypto transactions, it is proposed that the value of the crypto asset at acquisition and the gross proceeds upon disposal must also be reported in fiat currency.

Tax authorities can also opt-in to receive information from intermediaries on the list of external wallet addresses to which transfers are made for the crypto-asset user.

Intermediaries will have to identify their crypto asset users, their tax jurisdiction, and other relevant information mandated in the final framework.

Countries and interested parties have been invited to submit their views on the OECD proposals by April 29, 2022.