The United Kingdom recently made a significant stride to address the challenge of individuals exploiting crypto-assets to elude and circumvent significant amounts of uncollected tax through a joint declaration with 48 nations. Spearheaded by the UK, the Crypto-Asset Reporting Framework (CARF) stands as the latest tax transparency standard introduced by the OECD. Under this framework, crypto platforms will be mandated to share taxpayer information with tax authorities, a practice currently absent in their operations.
The new framework ensures that tax authorities can collaboratively exchange information, fortifying their ability to enforce tax compliance. The implementation of CARF is anticipated to commence in 2027, facilitating exchanges with partner nations. The initiative builds upon the global tax accord of 2021, encompassing two pillars designed to guarantee that businesses pay the appropriate taxes where they operate. Additionally, it targets significant multinational enterprises engaging in tax avoidance by imposing a 15% global minimum tax rate.
Victoria Atkins, the financial secretary to the Treasury, expressed pride in the UK’s leadership role in addressing global tax evasion, emphasizing the importance of securing revenue essential for public services and conveying a resolute message that leveraging crypto for tax evasion would not be tolerated.
The CARF is positioned to enhance the existing system employed by tax authorities for sharing information, known as the Common Reporting Standard. Launched in 2014, this standard has proven highly successful in combating offshore tax evasion, leading to the recovery of almost $125 billion in additional tax revenue from conventional financial assets.
The newly introduced framework is considered indispensable in confronting the escalating levels of tax avoidance fueled by the rapid expansion of the global crypto market. Estimates suggest that noncompliance with taxes on crypto-asset holdings ranges from 55% to 100%, underscoring the urgency of addressing this issue. Globally, companies are increasingly exploiting cryptocurrency assets to hide profits and evade taxes, contributing to the growing problem of cryptocurrency tax evasion. Companies use methods such as offshore wallets and exchanges or engaging in wash trading to generate fictitious capital losses. Although precise figures are still unknown, estimates place the annual amount in the tens of billions of dollars.
Leveraging its standing as a global leader in tax transparency, the UK plays a pivotal role in shaping, negotiating and finalizing the provisions of CARF. The implementation of this framework is poised to enable the UK to potentially recover hundreds of millions of pounds, reinforcing its commitment to combating tax evasion on an international scale.
This move to streamline the collection and sharing of tax information on an international basis shows enterprises such as Marathon Digital Holdings Inc. (NASDAQ: MARA) that countries are now taking crypto serious and are setting up systems to bring this industry into the mainstream fabric of business life.
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