News
30.06.2022

OECD not satisfied with AEOI and hungry for data on crypto-assets 

The OECD has set itself the aim of ensuring tax transparency with regard to crypto-assets. The Swiss banks fully support this but are critical of the unnecessary overlaps with the long-established system of automatic exchange of information (AEOI), which they believe will be costly and detrimental to competition.

The OECD presented a proposal in March for a form of automatic exchange of information specifically geared to virtual assets, as we reported in our news article of 11 May 2022. Described over a few dozen pages, the Crypto-Asset Reporting Framework (CARF) is a completely new reporting regime in addition to the existing AEOI, which has been established for years. It is intended to extend tax transparency to crypto-assets. In its response, the Swiss Bankers Association (SBA) expressly welcomed the creation of a level playing field for all types of financial service providers and assets. However, the banks are at a loss to understand why the CARF completely ignores AEOI and its extensive due diligence and reporting requirements, instead choosing to conjure up an entirely new regime of its own that essentially serves the same purpose as AEOI but simply takes a different technology as its starting point, namely the fact that the assets in question are tokenised rather than securitised. This is akin to treating an internet radio station in a different way to a conventional one rather than updating the existing regulation. The SBA’s detailed comments on the OECD proposal made the banks’ view clear.

OECD states’ insatiable hunger for data

Following the written consultation, the OECD held a public consultation meeting in Paris. In view of its well founded, critical comments, the SBA was invited to represent the position of the traditional financial sector. A large number of crypto providers submitted responses to the CARF proposals, but few representatives of established financial companies from other countries expressed an opinion, even though the CARF is likely to affect their operations. The SBA has thus taken the lead in this respect.

The invitation allowed SBA tax specialist Andreas Rohrer to attend the discussion in person and play an active role. The votes cast by many country delegates in Paris clearly demonstrated the insatiable hunger for data international tax authorities have now developed, which is at odds with the risk-based approach they previously favoured. They seem to have lost interest in cost/benefit analyses and assessing proportionality with a view to practical implementation, both from their own perspective and from that of the companies affected. The banking industry simply cannot understand why it is not possible to include crypto-assets in AEOI. Doing so would limit the CARF to those areas in which AEOI does not apply, where it would serve a legitimate purpose.

Just demanding more and more data shows a lack of awareness of the fact that AEOI is already overwhelming tax authorities with a flood of information that they cannot handle with their own resources alone. As Andreas told the meeting, the CARF would not only add to this flood (AEOI itself requires much more detailed reporting), it would also result in a seemingly endless need for clarification, given the fact that the same assets would sometimes need to be reported more than once.

Not enough involvement of industries concerned

Andreas’s view that the CARF proposal is “underdeveloped and unbalanced” stems largely from the OECD’s unrealistic timetable. He noted that the financial industry was involved superficially, but the tight deadlines made it almost impossible to study the proposed crypto reporting regime in depth. This, he said, gave the industry the impression of being presented with a fait accompli.  

The consultation on the CARF proposal was launched in March 2022 and lasted only five weeks, even though the proposal had been kept under wraps until then. The public consultation meeting was held just three weeks after that period ended. The text is to be finalised over the summer and adopted at the G20 summit in Bali in November. According to Andreas, this means that any changes that go beyond fine-tuning minor details are no longer possible. He believes that following this sort of procedure for a completely new and highly technical set of regulations, which would not be practicable even for a comparatively small country like Switzerland, could cause lasting problems at the global level.

This is what he had to say: “It’s obvious that the international financial sector in particular, with the exception of a few specialised crypto providers, could not even determine the extent to which it will be affected by this regime within such a short time frame.” Since the CARF covers not only cryptocurrencies but also all kinds of virtual assets, including tokenised shares and bonds, traditional financial institutions will have to implement it sooner or later. It is difficult to understand why such a comprehensive new regime with far-reaching consequences for the crypto world and large parts of the established financial sector should be handled in this way.

Andreas conceded that the political goals are ambitious and that new regulation cannot be solely based on the status quo, but he argued that drafting detailed rules for a global reporting regime takes time and that all affected industries must be involved in the process. Indeed, it took much longer to finalise the global AEOI regime.

InsightTax

Authors

Andreas Rohrer
Tax Specialist in Banking
+41 58 330 62 62

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