Author: FinTax

News Overview

According to the latest report from cryptonews, the South Korean government will initiate practical procedures to implement the "Crypto-Asset Reporting Framework" (CARF) led by the OECD, sharing trading information of foreign investors on local exchanges such as Upbit and Bithumb with other countries.

This move is part of South Korea's commitment to international obligations. As early as November 2023, South Korea joined a group of 48 countries, pledging to jointly implement an international digital asset reporting standard known as the "Crypto-Asset Reporting Framework." This framework aims to facilitate the automatic exchange of tax information related to crypto asset transactions in a standardized manner. However, South Korea's initiative is not an isolated case but part of a global trend to enhance tax transparency. Tax authorities in multiple countries, including the UK, Germany, and Japan, are actively promoting similar policies to prevent offshore tax evasion.

The report also clarified the timeline for the plan: the entire information-sharing system will officially launch in 2027, but the collection of transaction records will begin in 2026.

FinTax Perspective

As crypto assets evolve into an indispensable component of the global financial system, their inherent characteristics of decentralization, anonymity, and cross-border flow pose unprecedented challenges to the global tax system. The current international tax information exchange standard, the "Common Reporting Standard" (CRS), was primarily designed for financial accounts held by traditional financial institutions like banks, and it inadequately covers transactions conducted through crypto asset service providers, creating a significant potential tax loophole.

To address this global tax compliance risk, the OECD has taken the lead in developing and launching CARF. The fundamental purpose of this framework is to incorporate the crypto asset ecosystem into the global tax transparency framework by establishing a standardized mechanism for the automatic exchange of tax-related information, effectively combating international tax evasion using crypto assets and maintaining the integrity and fairness of tax bases in various countries.

The operational logic of CARF assigns the core reporting obligations to key intermediary nodes within the ecosystem—"Crypto-Asset Service Providers" (CASPs). This is a broad definition aimed at encompassing any individual or entity that provides crypto asset trading services to clients as a business, including but not limited to centralized crypto asset exchanges, crypto asset brokers, and market makers. To fulfill their reporting obligations, these service providers must implement a rigorous due diligence process to accurately identify their clients' identity information and tax residency status.

After completing client identity verification, CARF requires service providers to report a comprehensive range of transaction information, categorized by type of crypto asset, and summarized annually. For each type of transaction, service providers must report the total acquisition amount, total disposal amount, and the number of transactions within the year. Once this information is collected, it will be automatically exchanged through existing international legal frameworks. Specifically, a service provider located in Country A will report the identity and transaction data of tax residents from Country B on its platform to the tax authority of Country A, which will then automatically and bulk transmit this information to the tax authority of Country B annually, achieving a global information loop.

The South Korean government's proactive adoption and swift action regarding CARF signify much more than just a country fulfilling its international commitments. As one of the largest markets in terms of crypto asset trading volume and user participation globally, South Korea's stance serves as a strong indicator. The measures taken by South Korea send a clear message to crypto asset service providers worldwide: compliance is no longer optional but a necessity for survival. Especially for large exchanges operating globally, meeting the regulatory requirements of a major market means they must accelerate the establishment of a compliance system that can adapt to global standards.

For individual investors caught in this wave of transformation, the most significant change is that the previously utilized "gray areas" for tax planning or evasion, based on information opacity and cross-border jurisdictional barriers, are being thoroughly eliminated. The assumption that "crypto assets are unknown" no longer exists. Tax authorities can now leverage direct and conclusive data through CARF to cross-check with taxpayers' annual declarations, significantly enhancing the efficiency of tax audits.

Overall, South Korea's implementation of CARF rules not only reflects the inevitable trend of global tax compliance for crypto assets but also further indicates that compliance is a threshold that participants in the crypto market must cross. At the same time, this further reminds individual investors to abandon the past belief that crypto assets are tax-free, to pay attention to their country's crypto asset tax policies, and to hold crypto assets within a compliance framework to avoid tax risks and maximize long-term returns.

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