In the past few days, many articles online have suddenly started discussing a term that is relatively unfamiliar to us: CARF.

CARF stands for Crypto Asset Reporting Framework, which is a global tax information automatic exchange protocol specifically for crypto asset transactions.

From the literal meaning alone, we can guess what it is for—it's a tool specifically for taxing crypto asset users.

Why has this term suddenly become a hot topic online in the past couple of days?

Because starting next year (2027), countries that have already signed this agreement will begin to implement automatic information exchange between countries based on this protocol. Any country that joins this system will likely tax its tax residents if they have crypto asset transactions, based on this information exchange system.

To understand this protocol, we can start from the following key points:

• The protocol currently focuses on centralized exchanges (CEX). This means that all users who have transactions in CEX are potential tax subjects.

• All active earnings and passive transactions obtained in CEX may be considered potential taxable items.

Active earnings refer to the profits obtained from various transactions initiated by users, such as profits from trading between "fiat currency and crypto assets" and "crypto assets and crypto assets."

Passive earnings refer to profits obtained through airdrops, financial management, etc.

In other words, as long as there is a change in the user's balance in CEX, whether it is active or passive income, it may be subject to taxation. Moreover, withdrawal actions initiated from CEX may also be recorded and tracked.

The above analysis is based on the behaviors targeted by the protocol.

Next, let's look at the regions targeted by the protocol.

This protocol is only effective for countries and regions that have joined it. Currently, more than 40 countries and regions have joined this protocol, and these countries and regions will conduct the first information exchange next year (2027).

The Hong Kong government is reportedly going to join this protocol soon and plans to start automatic information exchange based on this protocol from 2028. There has been no news about the mainland region joining this protocol yet.

So, will tax residents in mainland China (who only pay taxes in mainland China) be affected by this protocol?

There are currently two viewpoints on this:

One viewpoint believes that since the mainland region has not yet joined this protocol, and there is currently no public and consistent definition regarding crypto assets, tax residents in the mainland region are not currently affected by this protocol.

However, there is another viewpoint that argues that although crypto assets are in a gray area in the mainland region, the law can have another interpretation regarding "taxes" arising from crypto asset transactions, so this impact cannot be completely ignored.

Is there a way to minimize the impact of this protocol?

I believe there is still a way for now.

Since the subjects constrained by this protocol are CEX, if users do not engage in transactions or activities on CEX, then theoretically, they can better avoid the impact of this protocol.

The best way to avoid leaving traces on CEX is to withdraw assets and fully adapt to a life purely on-chain in the future.

In fact, this has always been my consistent viewpoint: since we are already in the crypto ecosystem, why still cling to CEX?

The current on-chain world already has powerful functionalities, whether it is cross-chain or engaging in various activities, the functionalities provided on-chain can fully meet the vast majority of daily needs.

We should try to eliminate CEX from our crypto lives as much as possible.

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