CARF vs. CRS 2.0: The Basics

CARF (Crypto-Asset Reporting Framework) and CRS 2.0 (the updated Common Reporting Standard) are OECD-led initiatives aimed at enhancing global tax transparency through the automatic exchange of financial account information. While CRS was originally launched in 2014 to cover traditional financial accounts, and was updated in 2023 based on observed gaps in data collection and reporting, CARF was introduced in 2023 to address the growing gap in crypto-asset reporting.

CRS (Common Reporting Standard)

Originally, CRS required financial institutions to identify and report on accounts held by non-resident individuals or entities, sharing that data between countries. However, CRS didn’t cover digital assets, which became a growing blind spot as they gained traction in the global economy.

CRS 2.0 updates the original framework to reflect the evolving financial landscape. It introduces new definitions, expands the scope to include Central Bank Digital Currencies (CBDCs), specified scope of electronic money products, and derivatives referencing crypto-assets. Financial Institutions (FIs) under CRS 2.0 are required to follow enhanced due diligence procedures, including updated self-certification rules and more consistent data collection standards.

CARF (Crypto-Asset Reporting Framework)

CARF expands this global tax transparency and reporting network to cover crypto-assets (like Bitcoin, stablecoins, and NFTs).
It requires Crypto Asset Service Providers like exchanges, brokers, and custodians to collect and report data on account holders and transactions for tax transparency, much like financial institutions do under CRS. This includes not only trades and transfers but also retail payments exceeding $50,000. CARF’s reporting obligations mirror the rigor of CRS but are tailored to the unique characteristics of decentralized digital assets.

Onboarding Alignment: CARF and CRS 2.0

When someone says “the onboarding part of CARF is CRS 2.0,” they’re referring to the deliberate alignment between the two frameworks.CARF has been designed to align with CRS 2.0 onboarding and due diligence standards. These onboarding requirements include Know Your Customer (KYC), tax residency self-certification forms, and documentation validation. CRS 2.0 adds refinements like consistent definitions, expanded reporting obligations, and standardized data points, which CARF will mirror.

Both frameworks now share a unified approach to onboarding, ensuring consistency in how financial institutions and crypto service providers identify, validate, and report account holders. This harmonization simplifies compliance for institutions operating across both traditional and digital financial domains.

Reporting Divergence: CARF and CRS 2.0

CARF and CRS 2.0 differ primarily in their scope, reporting entities, and the nature of the data they collect. CARF is specifically designed to address the challenges posed by crypto-assets, requiring detailed transaction-level reporting by transaction and asset type. In contrast, CRS 2.0 focuses on account-level data such as balances and income, Additionally, CARF introduces stricter enforcement mechanisms and broader due diligence obligations tailored to the decentralized nature of crypto markets, whereas CRS 2.0 refines existing procedures to improve consistency and efficiency across jurisdictions.

Different but Equally Important

While CARF and CRS 2.0 share a common goal of enhancing global tax transparency and are both built on OECD standards for automatic information exchange, they differ significantly in scope, application, and reporting mechanics. CRS 2.0 is focused on traditional financial accounts and now expanded to include digital financial instruments like CBDCs and electronic money products. CARF, on the other hand, is a newly developed framework specifically targeting crypto-assets, requiring detailed transaction-level reporting from crypto-asset service providers. Despite these differences, both frameworks converge in their onboarding and due diligence requirements, adopting a unified approach to entity classification, tax residency self-certification, and documentation validation. This alignment ensures consistency in how institutions across both traditional and digital financial sectors identify and report account holders, even as the underlying assets and reporting obligations remain distinct.

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