OECD global framework in place, India to focus on crypto asset regulations

In the Union Budget, even though the government brought in a tax for cryptocurrencies, it did not proceed ahead with framing any further regulations for it despite the Reserve Bank of India having earlier proposed a ban on it that was subsequently set aside by a court order.

The OECD on Monday released a new global tax transparency framework, Crypto-Asset Reporting Framework (CARF), for reporting and exchange of information with respect to crypto-assets. This is in response to an earlier proposal of G20 that the OECD develop a framework for the automatic exchange of information between countries on crypto-assets. The CARF will be presented to G20 Finance Ministers and Central Bank Governors for discussion at their next meeting on October 12-13 in Washington D.C.

The CARF will target any digital representation of value that relies on a cryptographically secure distributed ledger or a similar technology to validate and secure transactions. Carve-outs are foreseen for assets that cannot be used for payment or investment purposes and for assets already fully covered by the common reporting standard. Entities or individuals that provide services effectuating exchange transactions in crypto-assets for, or on behalf of customers would be obliged to report under the CARF, which is expected to increase transparency of such transactions.

“The Common Reporting Standard has been very successful in the fight against international tax evasion. In 2021, over 100 jurisdictions exchanged information on 111 million financial accounts, covering total assets of EUR 11 trillion,” OECD Secretary-General Mathias Cormann said.

In July this year, underscoring that the RBI had expressed concerns over cryptocurrencies and sought a ban on them from the government, Finance Minister Nirmala Sitharaman said in Parliament that “international collaboration” would be needed for any effective regulation or ban on cryptocurrency as the digital currency is borderless in nature.

“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” she had said, while responding to questions raised in the Lok Sabha.

Sitharaman’s remarks in July had come days after the Financial Stability Board — an international body that monitors and makes recommendations about the global financial system and includes officials from the Group 20 countries including India — said that it would propose “robust” global rules for cryptocurrencies in October.

From April this year, India introduced a 30 per cent income tax on gains made from cryptocurrencies, in a move that was widely seen as the country embracing the virtual currency. In July, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.

Back in November, delivering a keynote address at the Sydney Dialogue, Prime Minister Narendra Modi had also pointed out the need for global collaboration on cryptocurrencies. “It is…essential for democracies to work together…Take crypto-currency or bitcoin for example. It is important that all democratic nations work together on this and ensure it does not end up in the wrong hands, which can spoil our youth,” he had said.

Experts said that the new reporting framework on crypto assets will create a level playing field. Sudhir Kapadia, Partner, Tax & Regulatory services, EY India, said, “Whilst some forward-looking countries have spotted an opportunity to attract crypto entrepreneurs to set up a base by providing an enabling environment for crypto operations, other countries have been more concerned about the potential misuse of crypto assets to fuel money laundering and prohibited end uses. In this context, the OECD announcement of a new transparency framework for crypto transactions is a welcome move as it will enable timely tracking of information and ensure that regulatory and tax compliances are duly adhered to across jurisdictions to create a level playing field.”