Will OECD’s Crypto Framework Pave The Way For Clear Regulations In India?

The Organisation for Economic Co-operation and Development (OECD) recently submitted its report on the crypto-asset reporting framework (CARF) and a set of amendments to the common reporting standard (CRS) to the G20. Earlier in March, the OECD had released a consultation paper on ‘CARF and amendments to the CRS and sought comments on it.

The framework has been published in accordance with the demand from various G20 member countries to enable the exchange of crypto-related information among the member countries in a standardised manner. India is also a member of the G20 and had earlier voiced the need for a global framework for effective monitoring of crypto markets.

The European Parliament too recently said that the OECD, which has already done substantial work on both taxation and the treatment of crypto assets, could be a suitable forum for building policy-setting standards on crypto taxation and reporting.

The CARF will be presented to G20 finance ministers and central bank governors for discussion.

It has laid out rules pertaining to the automatic exchange of information between countries and proposed seeking certain mandatory information from crypto intermediaries such as exchanges, wallet service providers and users as part of the due diligence process for reporting and exchange purposes.

Commenting on the framework, Ram Rastogi, digital payment strategist and former product head of NPCI, said, “The CARF sets rules that crypto asset firms must report in the country they conduct business in. Exchanges between relevant crypto assets and fiat currencies, along with exchanges between one or more types of crypto and transfers of crypto (including retail payment transactions), will need to be reported.”

What’s In The Framework

The CARF has a set of rules and commentary that the member countries can transpose into relevant domestic laws to collect information from exchanges, wallet service providers and other crypto intermediaries and share with the jurisdiction implementing the framework.

The CARF delves into four key points:

• Scope of crypto assets to be covered
• Entities and individuals subject to data collection and reporting requirements
• Transactions subject to reporting, as well as the information to be reported in respect of such transactions
• Due diligence procedures to identify crypto asset users and controlling persons and to determine the relevant tax jurisdictions for reporting and exchange purposes

According to the framework, exchanges and other entities will be obliged to share a set of information every calendar year/ reporting period with the government. This information will include:

• Name, office address as well as residential address, jurisdiction(s) of residence, TIN(s) and date and place of birth of each director of the company
• Crypto transaction details such as aggregate gross amount received, aggregate fair market value, and number of units of each crypto assets, among others

Crypto asset users will be required to give a self-certification allowing their service providers, that is exchanges and wallet providers, to determine the former’s first and last names and residence(s) for tax purposes pursuant to anti-money laundering/ know-your-customer (AML/KYC) procedures.

The framework further asserted that jurisdictions must have rules and administrative procedures in place to ensure the effective implementation of these rules.

Relevant Crypto-Assets

The OECD framework has defined relevant crypto assets in line with the FATF recommendations. Barring central bank digital currencies (CBDCs) and other specified electronic money products that can’t be used for the purpose of payment and investment purposes, cryptocurrencies at large, including Bitcoin and Ethereum, have been classified as relevant crypto assets.

On non-fungible tokens (NFTs), the OECD stated that NFTs which are traded on a marketplace can be used for payment or investment purposes and are therefore to be considered relevant crypto assets.

According to the framework, other indirect investments in crypto assets via derivatives and investment vehicles and CBDCs will be covered by CRS and not by CARF.

May Lead To India Reforming Its Crypto Taxation Regulations

With the OECD recommendations, India may reconsider the imposition of 1% TDS on crypto transactions and may lower crypto tax from the current 30%, according to experts.

“The world will be keen to hear India: We have been ahead of the curve on setting a reporting framework, although there’s scope to refine aspects like TDS of 1%. India is to assume the Presidency of the G20 later this year. It’s an opportunity to shape progressive policies that can make India competitive and spur innovation. There’s also a lot we could take from OECD, like the definition of “relevant assets”. Much to look forward to,” Ashish Singhal, cofounder and CEO of CoinSwitch Kuber, said,

While a few developed nations have put in place their own crypto regulations and framework, what the industry really needs is a common global standard. After all, crypto is a transformative technology that could profoundly change businesses across the world, Singhal added.

Seconding this, Avinash Shekhar, CEO of ZebPay, said, “OECD’s recently released Crypto-Assets Reporting Framework will help standardise reporting mechanisms between exchanges, individuals and governmental agencies while allowing for effective cooperation and enforcement at an international level. This will likely set the stage for crypto regulation in India and perhaps lead to a more equitable tax policy.”

The framework comes at a time when the crypto industry is facing regulatory uncertainty in the country. The Reserve Bank of India has been batting for a complete ban on private cryptocurrencies. Besides, the central bank is also planning to soon launch CBDC.

As such, the framework has raised hopes for clear regulations and other reliefs within the crypto industry in India.