The OECD plans to release a draft technical framework on crypto-asset reporting later this month to help governments regulate and capture tax from the booming industry.
The Organization for Economic Cooperation and Development’s crypto-asset reporting framework will include model technical rules and a commentary written to allow wide adoption and eventually allow nations to share data with one another, said Julien Jarrige, a G-20 Finance Track advisor at the OECD.
The goal is to have the final framework ready to present to the Group of 20 in the fall, he said.
Complementing the OECD’s work, the Biden administration on March 9 released an executive order outlining U.S. efforts for regulating the crypto sphere and possibly creating a central bank digital currency, or CBDC. The global drive to establish a a strong framework is meant to help to bring order amid the chaos created by breakneck industry expansion and the growing patchwork of regulatory approaches across the globe.
“Even if the executive order does not specifically mention tax policy aspects, we can see a link between the U.S.’s willingness to advance its regulation of crypto-assets, its work on CBDCs, and its ongoing involvement in the OECD work on developing the crypto-asset reporting framework,” Jarrige said.
Jarrige said the OECD proposal won’t address non-fungible tokens—blockchain-backed digital assets that serve as certificates of authenticity for both tangible goods (like paintings) and intangible goods (like digital soccer trading cards).
Sahel Assar, counsel in the tax section of Buchanan Ingersoll & Rooney, said the OECD will include clear definitions of blockchain and crypto assets, how cryptocurrency can be characterized from a tax point of view, its legal status, and tax consequences at different stages from creation to disposal of crypto assets.
Assar has been closely following the plan’s development. She said the technical work, the “special sauce,” is in high demand among national authorities, because crypto regulation is “long overdue.”
Member countries of the OECD Committee on Fiscal Affairs only weighed in with comments on the draft proposal on Tuesday. OECD is hoping to have the proposal draft out this month, though the deadline might slip to April.
Jarrige said the goal is to gather feedback and make changes over the summer to have the framework ready for an autumn presentation to the G20. The model technical rules and the commentary could then theoretically be implemented domestically, beginning in late 2022, early 2023, he said.
The proposal complements the existing Common Reporting Standard for automatic exchange of financial account information, so countries that don’t subscribe to CRS—notably the U.S.—can also use the new crypto framework, Jarrige said.
The second phase of this effort would be a framework for bilateral or multilateral competent authorities agreement, the legal mechanism that allows for exchange of information, he said.
While the timeline might seem ambitious, the demand is high and the tax concepts aren’t revolutionary, said Nicolas Cloutier, a partner at Canadian law firm McCarthy Tétrault LLP.
The tax challenges raised by crypto assets aren’t as great as those stemming from electronic commerce or digital supply of services, for example, Cloutier said.
“When you think about taxing crypto, I think it is simpler,” he said. “They’re still assets that are created or owned by people or businesses.”
Exchange Platform Requirements
The OECD proposal will set forth the reporting requirements for exchange platforms—brokers and dealers—so transactions can be reported on an aggregate basis by type of crypto assets, distinguishing between outward and inward transactions, Jarrige said.
Much of the crypto industry isn’t closely following the OECD efforts, but it needs to do so, said Caroline Malcolm, who recently left the OECD’s Global Blockchain Policy Center to be head of international public policy and research at Chainalysis, a data-analytics network platform focused on transparency in blockchains and digital assets.
There are also due diligence procedures in the OECD proposal to identify the crypto asset holder in the relevant tax jurisdiction for reporting purposes, Jarrige said. Feedback from industry during the public consultation process will be critical for ensuring that the rules are workable.
Industry needs to start thinking about how it collects this information and how its systems are set up so they can deliver the information that tax authorities will request, Malcolm said.
“If you’re interested in seeing the industry grow, you’re not going to get there without clarity on regulation, you’re not going to be able to continue to operate at the margins,” she said.
—With assistance from James Munson.