To promote exchange of information and transparency, the Organization for Economic Cooperation and Development (OECD) has issued the Common Reporting Standard (CRS) on 15 July 2014. The CRS requires certain committed jurisdictions to obtain information from their financial institutions and automatically exchange the information with other jurisdictions on an annual basis.
Following the rapid development and growth of the Crypto-Asset market, the regulators also need to catch up in filling in the loophole that is not covered yet by the current regulations. This situation brought concern to the G20 countries. Thus, the G20 mandated the OECD to develop a framework providing for the automatic exchange of tax-relevant information on Crypto-Assets. In response to this mandate, the OECD recently published the Crypto-Asset Reporting Framework (CARF). CARF is similar to CRS but is specifically designed for crypto-asset transactions. As quoted from the OECD’s website, the purpose of CARF’s issuance is to ensure that the recent gains in global tax transparency (after the issuance of CRS) will not be gradually eroded by the presence of crypto-asset transactions.
This update will discuss key aspects of CARF and the amendment of CRS.
CARF
- The Scope of the Crypto-Assets to be Covered
CARF targets assets that can be held and transferred in a decentralized manner, without the intervention of traditional financial intermediaries. It further elaborates that the Relevant Crypto-Asset that is subject to the reporting requirement are:
a. digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions (Crypto-Asset),
b. not a central bank digital currency, a specified electronic money product or any Crypto-Asset for which has been determined that it cannot be used for payment or investment purposes.
The examples of Crypto-Asset according to CARF are stablecoins, derivatives issued in the form of a crypto-asset and certain non-fungible tokens.
Notwithstanding the above, CARF clearly excludes the crypto-assets that fall into the following categories from the reporting requirement:
a. Crypto-assets that has been adequately determined cannot be used for payment or investment purposes by the reporting crypto-asset service provider,
b. Central bank digital currencies,
c. Specified electronic money products that represent a single Fiat Currency and are redeemable at any time in the same Fiat Currency at par value.
2. The Entities and Individuals Subject to Data Collection and Reporting Requirements
a. Reporting Crypto-Asset Service Provider
Any individual or entity that, as a business, provides a service effectuating (i) exchange between the targeted crypto-assets and fiat currencies, and (ii) exchange between one or more forms of the targeted crypto-assets for or on behalf of customers, including by acting as a counterparty, or as an intermediary, or by providing a trading platform.
b. Reportable Users
The user of the targeted crypto-assets in the relevant jurisdictions that is not categorized as an excluded person. CARF defines excluded person as (i) an entity the stock of which is regularly traded on one or more established securities markets, (ii) any entity that is a related entity of the entity that is described in point (i), (iii) a governmental entity, (iv) an international organization, (v) a central bank, or (vi) a financial institution other than the Investment Entity as described in CARF.
3. The Transactions Subject to Reporting and the Information to be Reported
The following types of transactions are the relevant transactions that must be reported according to CARF:
a. Exchanges between relevant crypto-assets and fiat currencies,
b. Exchanges between one or more forms of relevant crypto-assets, and
c. Transfers (including reportable retail payment transactions) of relevant crypto assets.
4. The Due Diligence Procedures to Identify Crypto-Asset Users and Controlling Persons
CARF requires the Reporting Crypto-Asset Service Provider to carry out due diligence on their users. The purposes of this due diligence are:
a. to identify whether the crypto-asset users are reportable, and
b. to determine the relevant tax jurisdictions for reporting and exchange purposes.
Amended CRS
There are two keys amendment to CRS made by the OECD:
1.Addition of New Digital Financial Products
The amendment concerning new digital financial products covers two issues:
a. Digital money products
Some new terms are introduced in the amendment to ensure a level-playing field between digital money products and traditional bank accounts and to ensure consistent reporting outcomes. The new terms are among others Specified Electronic Money Product, Central Bank Digital Currency, Depository Institution, and Depository Account.
b.Coverage of derivatives referencing crypto-assets and investment entities investing in crypto-assets
The amended CRS includes derivative contracts referencing Crypto-Assets in the definition of Financial Asset. With this inclusion, the Reporting Financial Institution must apply the same due diligence and reporting procedures to derivatives referencing different types of assets.
2. Enhancement to Reporting Outcomes
The following aspects are amended to enhance the reporting outcomes of CRS: (i) expansion of the reporting requirements in respect of account holders, controlling persons, and the financial accounts they own, (ii) reliance on AML/KYC procedures for determining controlling persons, (iii) exceptional due diligence procedures for cases where a valid self-certification was not obtained, in order to ensure reporting with respect to such accounts, (iv) qualification of certain capital contribution accounts as excluded accounts, (v) non-reporting financial institution category for genuine charities, (vi) broadening of the scope of depository institution, (vii) notions of customer and business in the context of investment entities, (viii) reporting in respect of dual-resident account holders, (ix) reflecting government verification services within the CRS due diligence procedures, (x) look-through requirements in respect of controlling persons of publicly traded entities, (xi) integrating citizenship and residence by investment guidance within the CRS, (xii) incorporating some frequently asked questions to the commentary.
Commentary
Indonesia is one of the committed jurisdictions of CRS and undertakes the first exchanges by 2018. Several regulations have been issued by the government to follow the CRS among others Law No. 9 of 2017[1] Minister of Finance (MoF) Regulation No. 73/PMK.03/2017[2] (as has been amended several times) and lastly the Financial Services Authority No. 25/POJK.03/2019[3]. Following the issuance of CARF and the amendment to CRS, it is expected that the Indonesian government will also issue new regulations to accommodate these regulations into the national laws and regulations shortly.
The Indonesian government has realized that there are loopholes in the taxation regulations due to the fast development of technology and the fintech world before the issuance of the CARF and the amended CRS. They have issued several regulations concerning digital taxation, among others MoF Regulation No. 60/PMK.03/2022[4], MoF Regulations No. 68/PMK.03/2022[5] and 69/PMK.03/2022[6]. In addition to this, the staff of the MoF also informed that the MoF is planning to implement OECD’s two-pillar solution to address the tax challenges arising from the digitalization of the economy in 2023. The first pillar that provides taxing rights to market jurisdictions on part of the residual profits earned by MNE groups with an annual global turnover exceeding €20 billion and 10% profitability would start to be implemented in the first semester of 2023. Meanwhile, the second pillar that addresses remaining BEPS challenges and is designed to ensure that large internationally operating businesses pay at least 15% tax regardless of where they are headquartered or the jurisdictions, they operate in is planned to be implemented in 2024.
For Further Information, Please Contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
1. UU No. 9 Tahun 2017 tentang Penetapan Peraturan Pemerintah Pengganti Undang-undang No. 1 Tahun 2017 tentang Akses Informasi Keuangan untuk Kepentingan Perpajakan Menjadi Undang-undang
2. Peraturan Menteri Keuangan No. 70/PMK.03/2017 tentang Petunjuk Teknis Mengenai Akses Informasi Keuangan untuk Kepentingan Perpajakan
3.Peraturan Otoritas Jasa Keuangan No. 25/POJK.03/2019 Tahun 2019 tentang Pelaporan Informasi Nasabah Asing terkait Perpajakan Kepada Negara Mitra atau Yurisdiksi Mitra CRS
4. Peraturan Menteri Keuangan No. 60/PMK.03/Tahun 2022 tentang Tata Cara Penunjukan Pemungut, Pemungutan, Penyetoran, dan Pelaporan Pajak Pertambahan Nilai atas Pemanfaatan Barang Kena Pajak Tidak Berwujud dan/atau Jasa Kena Pajak dari Luar Daerah Pabean di Dalam Daerah Pabean Melalui Perdagangan Melalui Sistem Elektronik
5. Peraturan Menteri Keuangan No. 68/PMK.03/2022 Tahun 2022 tentang Pajak Pertambahan Nilai dan Pajak Penghasilan atas Transaksi Perdagangan Aset Kripto
