Countries are to begin exchanging information about taxpayers' virtual currency transactions and holdings, under plans newly announced by the OECD to expand the Common Reporting Standard to cover crypto-assets. Following that announcement, in late November, the EU announced new obligations for crypto-asset exchanges.
Expansion of the CRS
The Common Reporting Standard presently provides for the automatic exchange of information on taxpayers' financial accounts. Last year, nearly 100 countries exchanged information on some 84 million financial accounts held offshore – almost double the activity recorded a year earlier.
Specifically, the Common Reporting Standard requires jurisdictions to exchange financial account information relating to non-residents, obtained from their financial institutions, automatically on an annual basis, to reduce the possibility for offshore tax evasion.
The OECD is now proposing that the Standard be expanded to ensure that virtual currencies do not create a new avenue for international tax evasion. It considers the expansion of the CRS to virtual currencies would better equip tax agencies to tackle tax non-compliance and make tax enforcement more feasible.
The OECD recently released a first-of-its-kind report for G20 policymakers on the different tax policy positions adopted internationally in relation to the taxation of virtual currencies, to foster a more joined-up approach to virtual currency issues internationally.
The OECD's report brings together for the first time information received from countries – received in response to a questionnaire – on their approaches to virtual currency tax issues. The report notes that, for income tax purposes, almost all countries consider virtual currencies to be a form of property; most commonly, an intangible asset other than goodwill, a financial asset, or a commodity. The assets are therefore treated as capital gain-generating assets in most jurisdictions, and in rare cases, as generating business or miscellaneous income.
The report notes that only a few of the respondent countries consider virtual currencies to be similar to currency for tax purposes.
The VAT treatment of virtual currencies is more consistent across countries than income taxes, with most countries mirroring the approach adopted in the European Union. The EU treats as out of scope for VAT purposes the use of virtual currencies to buy goods or services, while the underlying supply of goods or services is subject to the normal VAT rules.
The CRS announcement and report indicate that crypto-assets will be a major area of focus for the OECD, tax authorities, and governments starting from 2021.
The European Union announced in late November that it would focus the eighth amendment to the Directive on Administrative Cooperation (DAC8) on crypto-asset issues.
Under DAC8, intermediaries would be required to provide details of transactions and virtual currency holdings. The intention is to provide tax administrations with information to identify taxpayers who are actively using new means of exchange, notably crypto-assets and e-money, to help the tax agencies curb tax fraud and evasion. A consultation on the proposed DAC8 will close on December 21, 2020.
The OECD is keen to ensure that the gains made in recent years to tackle offshore tax evasion and avoidance are not lost to the increasing use of virtual currencies. More countries are expected to set out rules to require disclosure of virtual currency trades and holdings, especially as countries consider how to plug the fiscal holes left by the COVID-19 pandemic.