Author: FinTax

Basic Impact Logic of CARF

With the advancement of CARF, the ability of tax authorities in various countries to obtain information on overseas crypto assets will be significantly enhanced.

CARF does not create tax rules; rather, it enables tax authorities to identify the income from crypto assets obtained by their tax residents abroad through automatic information exchange.

Based on information transparency, it may become routine to impose back taxes and enforce penalties on unreported income.

For countries that have committed to joining CARF and legislating its implementation, the crypto asset accounts and transaction information of tax residents on overseas exchanges will be exchanged among tax authorities through the CARF mechanism. Tax authorities can use this information to compare tax declarations and impose penalties for underreporting or non-reporting.

Countries that have Joined CARF: Traceability After Information Transparency

Taking the UK as an example, starting in 2026, the UK will require local crypto asset service providers to systematically collect user transaction data for tax verification. The UK’s HM Revenue and Customs (HMRC) has clearly stated that it will use the relevant data to cross-check individual tax records. If unreported income from crypto assets is discovered, taxes will be reclaimed and fines imposed according to the law.

In such jurisdictions, once crypto asset transaction information enters the tax authorities' view through CARF, there is a real risk of retroactive taxation on previously unreported overseas crypto income.

Key Risk Point: Liquidation of Crypto Assets

Mainland China has not yet joined CARF, and tax authorities cannot automatically obtain information on crypto asset accounts held by Chinese residents on overseas exchanges in the short term. Under the current policy, the risk of domestic tax authorities directly discovering and reclaiming taxes solely due to the holding of crypto assets abroad is relatively low.

However, this assessment is limited to crypto assets remaining within the crypto system. Once crypto assets are converted into fiat currency and enter bank accounts or other financial account systems, the risk pathway will change.

Since 2018, mainland China has fully implemented the CRS and has engaged in automatic exchange of financial account information with multiple jurisdictions. Under the CRS framework, there are already practical enforcement precedents for Chinese tax authorities to reclaim taxes through information from overseas financial accounts.

Therefore, even if mainland China has not participated in CARF, once crypto assets are liquidated through overseas exchanges and stored in financial accounts, the relevant information may still be transmitted back to domestic tax authorities through CRS or other channels.

The Real Existence of Other Tax Information Channels

Under existing tax agreements and enforcement cooperation mechanisms, tax authorities in various countries can collaborate on individual case investigations to exchange tax-related information about specific taxpayers.

If tax authorities in other countries discover significant tax evasion or illegal transactions involving Chinese residents during enforcement actions, relevant leads may also be provided to the Chinese side through bilateral mechanisms.

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