Data only provides transaction records, and taxable income depends on tax identity and cost accounting.

Written by: Conflux

If you buy Bitcoin on an overseas exchange and then sell it on another platform, will your tax authority know about this transaction?

If you exchange tokens between multiple platforms and ultimately gain or lose, how will the tax authority calculate it?

In the past, crypto assets could flow between different platforms globally, but transaction records were often scattered across different countries and regions. Even if tax authorities established clear tax rules, they might not grasp the complete trading situation of investors.

But this information gap is gradually being filled by the international tax information exchange mechanism.

On November 4, the Hong Kong Legislative Council passed the 2026 Tax (Amendment) (Crypto Asset Reporting Framework and Revised Common Reporting Standard) Bill. According to the plan, relevant crypto asset service providers in Hong Kong will start collecting customer and transaction information from 2027, while the Hong Kong tax authority will exchange relevant data with partner tax jurisdictions starting in 2028.

The next day, the South Korean government announced its plan to postpone the capital gains tax on crypto assets, originally scheduled for implementation in 2027, by two years to 2029.

On one side, Hong Kong is beginning to establish a cross-border exchange channel for crypto asset transaction information, while on the other side, South Korea is postponing taxation due to insufficient preparation for cross-border data exchange and tax enforcement.

Whether the transaction records can be accessed by tax authorities is becoming a key factor in determining whether cross-border crypto asset gains can be effectively taxed.

Overseas Transactions Must Be Declared

In the traditional financial system, bank accounts and securities accounts have long been included in the cross-border tax information exchange mechanism.

Since 2018, Hong Kong has been automatically exchanging financial account information with partner tax jurisdictions under the Common Reporting Standard (CRS). Financial institutions, such as banks, are required to identify customers' tax residency status and report relevant account information to tax authorities as stipulated.

However, there has long been a difference in crypto asset transactions: transactions can occur on platforms in different countries and regions, and can also circulate between centralized exchanges, personal wallets, and on-chain protocols. The traditional CRS does not fully cover such transactions.

This is precisely the reason why the OECD launched the Crypto Asset Reporting Framework (CARF).

CARF, released in 2023, mainly requires eligible crypto asset service providers to collect customer identity, tax residency status, and relevant transaction information, which will then be provided to relevant partners by the tax authorities of the participating jurisdictions according to international exchange arrangements.

The bill passed by Hong Kong means that this mechanism will enter the local implementation stage.

According to the timeline, starting from January 1, 2027, relevant service providers in Hong Kong will need to begin collecting information required by CARF; the Hong Kong tax authority plans to start automatic information exchange with partner tax jurisdictions from 2028.

It is important to note that 2027 is the time when Hong Kong will start collecting information, while 2028 is the starting point for exchanging data with partner jurisdictions. This does not mean that all trading platforms will directly provide all client records to overseas tax authorities in 2027.

The reporting scope of CARF mainly includes three types of activities:

• Exchanges between fiat currency and crypto assets, such as buying Bitcoin with US dollars or selling Bitcoin for fiat currency;
• Exchanges between different crypto assets, such as exchanging ETH for USDT;
• Transfer of crypto assets that meet reporting criteria, including transferring assets to other service providers or specific external wallet addresses.

Service providers also need to collect clients' names, addresses, tax residency status, and taxpayer identification numbers to correlate transaction records with client identities.

This means that what tax authorities will obtain in the future may no longer just be the balance of a certain account, but also more specific data that can be used to reconstruct clients' crypto asset trading activities.

However, CARF is not about indiscriminately monitoring all on-chain activities. It mainly relies on service providers within the framework to fulfill their reporting obligations. Non-custodial wallets, DeFi protocols, and other activities not conducted by the relevant reporting entities cannot simply be understood as automatically covered by CARF.

Why is Korea Waiting Two More Years?

If cross-border transaction data has already begun to establish an exchange mechanism, why does Korea still want to postpone taxation?

The rationale provided by the South Korean government illustrates the relationship between information exchange and tax enforcement.

South Korea originally planned to begin taxing individuals on capital gains derived from crypto asset transfers or lending starting January 1, 2027. Under the current plan, income exceeding 25 million won annually would be subject to a 20% income tax, plus a 2% local income tax, totaling a 22% tax rate.

But on November 5, South Korean Finance Minister Lee Hyung-ah stated that the government plans to delay implementation by another two years until 2029. This will be the fourth postponement of this tax policy, which will ultimately still need to be implemented through subsequent legislative procedures.

The South Korean government particularly mentioned that the timeline for cross-border tax information exchange would affect the fairness and effectiveness of tax enforcement.

South Korea expects to begin exchanging tax information related to crypto assets with the United States by 2029. If domestic transactions are taxed first and data from overseas platform transactions cannot be obtained in time, tax authorities may struggle to fully grasp taxpayers' foreign trade situations.

This could lead to investors who conduct activities on local trading platforms being more easily included under taxation while those trading via overseas platforms might temporarily find themselves in a different regulatory situation due to data deficiencies.

If the tax system can only effectively cover a portion of transactions, it will be difficult to achieve fair taxation across different trading channels.

This is also the reason why South Korea hopes to use the postponement period to improve the system. In addition to waiting for cross-border information exchange arrangements, the government also plans to further refine tax rules for different transaction types, improve reporting processes, and promote legislation related to digital assets.

In other words, what South Korea is facing is not simply "whether to tax crypto assets," but how to apply relatively consistent rules to investors in different channels after domestic and foreign trading data gradually connect.

How is the Tax Calculated?

For investors, the most likely misunderstanding arising from CARF is: does the initiation of reporting transaction information by platforms mean that tax authorities can directly calculate their taxable profits?

The answer is no.

Transaction volume, account balance, and taxable income are three different concepts.

For instance, if an investor buys BTC for $10,000 and subsequently sells it for $12,000, looking solely at this transaction, the gain is $2,000, not $12,000.

If an investor repeatedly buys and sells across different platforms, exchanges cryptocurrencies, or transfers assets into personal wallets, calculating actual gains becomes even more complex. Even if tax authorities obtain transaction records, they still need to consider applicable tax laws, asset costs, and the nature of transactions to determine which income is taxable.

This is why CARF reporting data cannot be directly equated with tax bills.

At least three additional questions truly influence the tax burden on investors.

• First, does exchanging one cryptocurrency for another constitute a taxable disposal?

If an investor exchanges ETH for USDT, this transaction may be considered the disposal of ETH under certain tax systems, requiring calculation of gains or losses based on the market value at the time of exchange.

This means that even if an investor does not convert assets into fiat currency, they may still have tax-relevant transaction outcomes. However, different countries and regions have different recognition rules, and one place's treatment cannot be directly applied to others.

• Second, can losses be carried forward to offset future gains?

The original South Korean plan only allowed for the deduction of relevant losses within the same year and did not permit carrying losses forward to future years.

For example: if an investor incurs a loss of 10 million won in the first year and makes a profit of 5 million won in the second year, merging the two years would mean the investor is actually still at a loss of 5 million won.

But if the tax system does not allow losses to be carried forward across years, the 5 million won profit in the second year could still fall within the taxable income calculation range for that year.

The South Korean government has now stated that it will study allowing investors to carry losses forward for up to three years to offset future gains. This arrangement is still in the planning stages and is not yet an effective rule.

• Third, tax residency status is more important than the location of the trading platform.

Using trading platforms in Hong Kong, Singapore, or the United States does not automatically mean that one is subject to the tax systems of those regions.

When tax authorities determine if a person needs to pay tax, they typically first look at their tax residency status and whether the relevant income falls within the taxable scope of local tax laws. The location of the platform is just one factor in determining reporting obligations and data exchange paths.

Therefore, overseas platforms are not tools that automatically change tax residency and evade tax obligations.

Will Hong Kong Investors Pay More Taxes Because of This?

The passage of the CARF bill in Hong Kong does not mean that Hong Kong has introduced a new capital gains tax on crypto assets.

The tax system in Hong Kong does not have a separate capital gains tax. Capital gains from long-term personal investments generally do not fall within the scope of profits tax.

However, if an investor's buying and selling activities constitute business or trading activities, the related profits may be taxable in Hong Kong if they are sourced from Hong Kong. Determining whether a gain is capital gain or business profit requires considering transaction frequency, holding period, trading purpose, and other specific facts, rather than solely relying on asset names or trading platforms.

What CARF changes is the ability of tax authorities to access information, not the principle of Hong Kong's taxation of crypto asset gains.

For tax residents of Hong Kong, the real concern should not be "Will transaction records be exchanged?" but rather whether they can explain the nature of these transactions, the source of funds, and the method of calculating gains when tax authorities can access more cross-border trading information.

These records are not only for dealing with CARF; they are also related to whether investors can accurately compute their real gains.

Tax Transparency Has Just Begun

The differing choices of Hong Kong and South Korea reflect the same trend: the regulation of crypto asset taxation is shifting from managing transaction records within a single jurisdiction to cross-border information collaboration.

But this process will not be suddenly completed one day.

The timelines for implementing CARF differ across regions, and the range of partners participating in information exchange is not entirely the same. Even if a certain jurisdiction has begun collecting data, it does not mean that it can immediately obtain transaction records from all overseas platforms.

The United States and South Korea are expected to start exchanging relevant information from 2029, while Hong Kong plans to exchange CARF data with partner jurisdictions starting in 2028. The time differences between different regions will still impact the completeness of tax authorities' understanding of foreign transactions.

Thus, CARF is neither comprehensive monitoring of crypto asset transactions nor a globally unified taxation system. What it truly promotes is something more fundamental: the opportunity for transaction information originally scattered across different service providers and jurisdictions to be identified, reported, and exchanged through unified standards.

In the past, investors might have believed that by placing assets on overseas platforms, transaction records would be less likely to come to the attention of local tax authorities. In the future, this judgment will become increasingly unreliable.

But for investors, what truly determines their final tax burden remains their tax residency status, the nature of income, cost accounting, and loss offset rules.

Overseas exchanges no longer automatically equal a tax blind spot, but the visibility of transaction data does not equate to every transaction being taxed. The distinction between these two is key to understanding the next phase of crypto asset tax regulation.