The Global Forum's CARF Commitment Process

Saatja: [email protected] Saaja: "RAM Info" Teema: [Estonia] The Global Forum's CARF Commitment Process Kuupäev: 2024-08-29 13:01 To: H.E. Mr. Jürgen Ligi, Minister of Finance, Estonia From: Ms Zayda Manatta, Head of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes Subject: [Estonia] The Global Forum's CARF Commitment Process ZM/CT/7304/GF For the attention of the Minister’s Office, Please find attached a letter from the Chair of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) in relation to the Global Forum’s Crypto-Asset Reporting Framework (CARF) commitment process, which will culminate at the Global Forum’s 2024 Plenary meeting in November. Please also find attached a note for officials, that contains model text for a possible response, as well as some FAQs. Below is also some background information. I also note that your jurisdiction is one of the 59 jurisdictions that have already announced their intention to work towards commencing exchanges by 2027. Given this, please note that an official level response confirming your jurisdiction’s commitment to implement the CARF in accordance with the Global Forum’s CARF commitment process would suffice as a response to the letter from the Chair. Context * The Global Forum’s CARF commitment process is a key milestone in its work to deliver on the G20 request for it to “build on its commitment and monitoring processes to ensure the widespread implementation of the [CARF] by relevant jurisdictions.” It builds on the Global Forum’s work to identify relevant jurisdictions in relation to the CARF and formalizes the voluntary commitment already made by 59 jurisdictions to implement the CARF, many of which have already announced the domestic implementation of the CARF. * The Global Forum’s CARF commitment process is needed to deliver a level playing field for governments and business, so that all Global Forum members implementing the CARF do so on the same basis and in accordance with mutually agreed timelines. * There is also a signing ceremony of the CARF Multilateral Competent Authority Agreement that will take place at the Plenary, in which jurisdictions can participate to begin to implement the commitment. Please note, that I am available (at <mailto:[email protected]> [email protected] or at [email protected] <mailto:[email protected]> ) to answer any questions you may have. Best regards, Zayda Manatta Ms. Zayda Manatta Head of Secretariat Global Forum on Transparency and Exchange of Information for Tax Purposes OECD Centre for Tax Policy and Administration Mailing address: 2, rue André Pascal, 75775 Paris Cedex 16, France Visiting address: 46 Quai Alphonse le Gallo, 92100 Boulogne Billancourt, France Tel: +33 1 45 24 82 29 / Fax: +33 1 44 30 63 21 <mailto:[email protected]> [email protected] || <http://www.oecd.org/tax/transparency> www.oecd.org/tax/transparency Sign-up to our tax news alerts: <https://oe.cd/tax-news> https://oe.cd/tax-news Follow us on: <http://twitter.com/OECDtax> <https://www.linkedin.com/company/oecdtax/> <https://www.youtube.com/oecdtax> <https://www.flickr.com/photos/oecdtax/> R Ref: ZM/CT/7304/GF H.E. Mr. Jürgen Ligi Minister of Finance Estonia By email: [email protected] Cc: [email protected]; [email protected]; [email protected] Paris, 28 August 2024 Subject: The Global Forum's CARF Commitment Process Dear Minister of Finance Ligi, I am writing in connection with the ongoing work of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) to ensure the widespread implementation of the Crypto-Asset Reporting Framework (CARF) as well as to inform you of a signing ceremony of the CARF Multilateral Competent Authority Agreement (CARF MCAA) that is taking place at the Global Forum’s 2024 Plenary meeting from 26 to 28 November in Asuncion, Paraguay . The CARF extends the Automatic Exchange of Information (AEOI) for tax purposes to the crypto-asset sector to help tax authorities address the tax risks posed by crypto-assets. It will also preserve the integrity of the Common Reporting Standard (CRS) for AEOI in relation to Financial Accounts, which can be side-stepped using crypto-assets. Furthermore, it is anticipated to produce significant deterrent effects to tax evasion and avoidance using crypto-assets. The political momentum behind the CARF is shown by 59 jurisdictions having already announced their “intent” to commence exchanges under the CARF from 2027. This of course includes Estonia, which I warmly welcome. Further details on the CARF, how it builds closely on the CRS and on the jurisdictions intending to exchange information under the CARF from 2027 are contained in the enclosed Annex. The Global Forum’s work on the CARF is in response to a G20 request in October 2022, for the Global Forum to “build on its commitment and monitoring processes to ensure the widespread implementation of the CARF by relevant jurisdictions”, which was welcomed by the Global Forum Plenary as the means to deliver an effective CARF based on a level playing field for governments and business. The Global Forum subsequently established the CARF Group to take forward the work and significant progress has been made. The Global Forum Plenary has since asked for the CARF commitment process to be finalised by the 2024 Global Forum Plenary meeting. The first step for implementing the CARF is to express political commitment in accordance with common timelines. I am therefore writing to you to invite Estonia to make a commitment to implement the CARF under the Global Forum’s CARF commitment process. Delivering an effective CARF based on a level playing field requires all jurisdictions that host a relevant crypto-asset sector to implement the CARF. Estonia has been identified by the CARF Group as very likely to be hosting such a crypto-asset sector based on the criteria adopted by the Global Forum (noting that the Global Forum Secretariat is currently engaged with your officials at a technical level to discuss this analysis). If confirmed, Estonia will be seen as a jurisdiction of relevance to the CARF and will be expected to commit to implement the CARF by the Global Forum’s 2024 Plenary Meeting. Regardless of this exercise, Estonia is welcome to commit to implement the CARF to benefit from receiving information held abroad on crypto-assets that taxpayers resident in Estonia own. The Global Forum’s CARF commitment process is also the mechanism through which the statements made so far to implement the CARF are being formalised. Direct line 2, rue André-Pascal www.oecd.org/tax/transparency Tel.: +33 (0) 1 45 24 82 29 75775 Paris Cedex 16, France [email protected] Fax. : +33 (0) 1 44 30 63 21 Committing to implement the CARF under the Global Forum’s CARF commitment process entails committing to implement the CARF in time to commence exchanges under the CARF from 2027, or 2028 if Estonia faces particular challenges with meeting the 2027 timeline. Similarly to the commitments to the CRS, committing to the CARF is expected to include a commitment to exchange information with all interested appropriate partners (jurisdictions that have implemented the CARF, which meet the expected standards in relation to confidentiality and data safeguards and that are interested in receiving CARF information from your jurisdiction). I would therefore welcome Estonia’s commitment to implement the CARF, in accordance with the details set out in the paragraph above, by the 2024 Global Forum Plenary Meeting. Such a commitment can be made through replying as such to this letter. A key step towards putting into effect a commitment to implement the CARF is signing the CARF MCAA. As mentioned above, there will be an opportunity to sign the CARF MCAA at the 2024 Global Forum Plenary meeting which I would welcome Estonia’s involvement in. Participation can be during the meeting, where a person with the appropriate authority can sign the MCAA, or through signing the relevant documents remotely in advance. Further details have already been shared with Estonia’s Global Forum representatives. In addition to being able to provide further details on any of the issues in this letter and the technical Annex, Ms. Zayda Manatta, Head of the Global Forum Secretariat (who can be contacted at [email protected] or at [email protected]) is ready to answer any queries you or your team may have, as well as to provide further assistance in relation to the implementation of the CARF. I would welcome your response to this letter before Thursday, 31 October 2024 at the latest (and earlier if possible). This will enable the Global Forum to have a comprehensive overview of the commitments made by the Global Forum Plenary in November and to properly report to the public and the G20 on the progress it has made to deliver its request. Yours sincerely, Gaël Perraud Chair, Global Forum Reply by email to: [email protected], for the attention of Mr. Gaël Perraud Direct line 2, rue André-Pascal www.oecd.org/tax/transparency Tel.: +33 (0) 1 45 24 82 29 75775 Paris Cedex 16, France [email protected] Fax. : +33 (0) 1 44 30 63 21 Annex A. The building blocks to implement the CARF and how they build upon the CRS This Annex sets out in high-level terms the various building blocks necessary to commit to and implement the Crypto- Asset Reporting Framework, including how they build closely on the requirements of the Common Reporting Standard (CRS), in relation to the automatic exchange of information (AEOI) on Financial Accounts. Building block 1 - Political commitments to implement the CARF The first building block to implement the CARF is to make a political commitment under the Global Forum’s commitment process. This builds very closely on the Global Forum’s commitment process in relation to the CRS. It includes a common timeline to commence CARF exchanges (2027, or 2028 if a jurisdiction faces particular challenges with the 2027 timeline) and an expectation that information will be required to be exchanged with all interested appropriate partners (being jurisdictions that have implemented the CARF, which meet the expected standards in relation to confidentiality and data safeguards and which are interested in receiving CARF information from another jurisdiction that has implemented the CARF). 59 jurisdictions have already announced their intent to implement the CARF in time to commence exchanges from 2027. 24 The Global Forum’s CARF commitment process will supersede the joint statement issued by these jurisdictions. Building block 2 - The legal frameworks Like with the CRS, jurisdictions implementing the CARF will need to put in place the necessary domestic and international legal frameworks. Domestic legal framework As with the CRS, implementing the CARF requires jurisdictions to implement the due diligence and reporting obligations (which closely mirror the CRS), along with the relevant definitions and an enforcement framework into their domestic legislative framework. This is to ensure that Reporting Crypto-Asset Service Providers (RCASPs) collect and report the necessary information for exchange. International legal framework Jurisdictions need an international legal framework to exchange CARF information automatically once it is reported. This can be bilateral or multilateral. As for the CRS, the Convention on Mutual Administrative Assistance in Tax Matters (MAAC) can be relied upon to provide a legal basis for AEOI. As with the CRS, there is an administrative agreement (the CARF Multilateral Competent Authority Agreement or CARF MCAA) to put in place in conjunction with the MAC that sets out 24 Argentina, Armenia, Australia, Austria, Azerbaijan, Barbados, Belgium, Belize, Bermuda, Brazil, Bulgaria, Canada, Cayman Islands, Chile, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Indonesia, Ireland, Isle of Man, Italy, Japan, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States of America. Direct line 2, rue André-Pascal www.oecd.org/tax/transparency Tel.: +33 (0) 1 45 24 82 29 75775 Paris Cedex 16, France [email protected] Fax. : +33 (0) 1 44 30 63 21 the specificities of the CARF exchanges. Similarly to for the CRS, bilateral exchanges under the CARF MCAA are only activated once both parties to the exchange have activated the exchanges with each other. Building block 3 – The IT and administrative frameworks As with the CRS, IT and administrative frameworks are needed to operationalise the exchanges and to ensure that the CARF is effective. The IT framework RCASPs are required to report information under the CARF to the competent authority in the jurisdiction. This requires the jurisdiction to establish a mechanism through which the reporting takes place. AEOI portals that have been put in place for reporting under the CRS could be used for reporting under the CARF. Once the information has been reported, it will need to be validated, sorted and prepared for exchange and transmitted to the jurisdiction’s exchange partners. Again, given the similarities between the CRS and the CARF, it should be possible to leverage the same solutions, noting that there is a dedicated CARF XML Schema that must be used for the exchanges (similar to how the CRS XML Schema must be used for the CRS). For the transmission of the information, the Common Transmission System (CTS) can be used, as for all other types of tax information exchange. The administrative framework As with Reporting Financial Institutions under the CARF, there should be an administrative compliance framework to ensure that RCASPs comply with the requirements of the CARF. This includes measures to identify RCASPs and ensure that they report information and that the information they are reporting is in line with the CARF. Building block 4 – Ensuring appropriate confidentiality and data safeguards are in place Ensuring confidentiality and safeguarding the information exchanged is critical to the exchange of information for tax purposes in general and to AEOI in particular. As with all forms of information exchange for tax purposes including the CRS, the CARF requires jurisdictions to have appropriate confidentiality and data safeguards in place. This includes appropriate legal frameworks and systems and procedures to ensure that the legal framework is respected in practice. The Global Forum has an established process to assess the confidentiality and data safeguard frameworks in place for AEOI. Where jurisdictions are relying on the same frameworks for the CARF that they use for CRS, the results of the assessments could be relied upon for the CARF. Direct line 2, rue André-Pascal www.oecd.org/tax/transparency Tel.: +33 (0) 1 45 24 82 29 75775 Paris Cedex 16, France [email protected] Fax. : +33 (0) 1 44 30 63 21 The Global Forum’s CARF Commitment Process : Model commitment language and Frequently Asked Questions (FAQs) This note was prepared by the Global Forum Secretariat, which offers support on all these topics. Please contact [email protected] with any questions. Model commitment language that may be used to reply to the Global Forum Chair’s letter I confirm that [jurisdiction] c ommit s to implement the CARF under the terms of the Global Forum’s CARF commitment process , as set out in the letter from the Chair of the Global Forum dated 28 August 2024 . AND [In this regard, [jurisdiction] is committing to commence exchanges under the CARF in accordance with the generally expected timeline of 2027 .] OR [In this regard, [jurisdiction] faces particular challenges with commencing exchanges under the CARF in 2027 and therefore commits to commence exchanges under the CARF in 2028. ] Frequently Asked Questions (FAQs) What is the Crypto-Asset Reporting Framework ( CARF ) ? The CARF is a 2023 OECD/G20 standard which extends the automatic exchange of information for tax purposes (AEOI) to the crypto-asset sector. It seeks to address the tax risks posed by the growth in the use of crypto-assets . The CARF builds as closely as possible on the 2014 Common Reporting Standard (CRS), which provides for AEOI in relation to financial accounts and in which well over 100 jurisdictions are already participating. T he G20 request ed for the Global Forum to “build on its commitment and monitoring processes to ensure the widespread implementation of the [CARF] by relevant jurisdictions.” What is the Global Forum’s CARF Commitment Process? T he Global Forum’s CARF Commitment Process i s a multilateral mechanism (along with the subsequent monitoring of delivery) to ensure the CARF is implemented based on a level playing field for governments and business . This will ensure the coverage of the CARF and therefore its effectiveness. It buil ds closely on the Global Forum’s 2013 CRS commitment process. The Global Forum’s CARF Commitment Process involves political commitments to implement the CARF on a multilaterally agreed basis and in accordance with mutually agreed timelines. T he Global Forum’s CARF Commitment Process will culminate at the Global Forum’s 2024 Plenary meeting from 26-28 November, at which point the outcomes will be announced. What is being committed to under th e Global Forum’s CARF Commitment Process? Th e Global Forum’s CARF commitment process , as develop by the Global Forum’s CARF Group, entails a political commit ment to implement the CARF in time to commence exchanges under the CARF from 2027, or 2028 ( if the jurisdiction faces particular challenges with meeting the 2027 timeline ) . I f a jurisdiction commits to commence exchanges in 2027 and later experiences particular challenges, it would be possible to move its commitment to 2028. As with the Global Forum’s CRS Commitment Process, co mmitting to the CARF is also expected to include a commitment to exchange information with all interested appropriate partners (jurisdictions that have implemented the CARF, which meet the expected standards in relation to confidentiality and data safeguards and that are interested in receiving CARF information from your jurisdiction). How does th e Global Forum’s CARF Commitment Process relate to its CARF Jurisdictions of Relevance process ? The Global Forum’s CARF Jurisdictions of Relevance process is designed to identify jurisdictions that host a relevant crypto-asset sector and which should therefore be asked to commit to the CARF in order to ensure proper coverage of the CARF and a level playing field. Whether or not a jurisdiction is identified as a Jurisdiction of Relevance to the CARF, it may still participate in the Global Forum’s CARF commitment process (e.g. because it wishes to implement the CARF so it can receive information on the crypto-asset investments of its taxpayer s using foreign crypto-asset service providers ) . My jurisdiction already announced it will implement the CARF (e. g. through the joint statement on the CARF), does it need to commit through the Global Forum’s CARF Commitment Process? 59 jurisdictions have already announced their “intent” to implement the CARF in time to commence exchanges from 2027 by adhering to the voluntary joint statement. Some jurisdictions have also made equivalent statements domestically. The Global Forum’s CARF Commitment Process formalizes the voluntary commitment process (and domestic announcements) by providing clear and multilaterally agreed positions on the substance and timing of the implementation of the CARF, which can then be monitored consistently . This is to ensure the delivery of the level playing field. All jurisdictions identified as Jurisdictions of Relevance to the CARF , and any others that wish to benefit from the CARF according to the multilaterally agreed criteria , are therefore expected to commit to implement the CARF under the Global Forum’s CARF Commitment Process , regardless of the previous commitments made. How does the Global Forum’s CARF Commitment Process relate to the signing of the CARF M ultilateral C ompetent A uthority A greement (CARF MCAA) ? Once a commitment is made to implement the CARF, a key step to implement the commitment is signing the CARF MCAA , which is the international administrative agreement to operationalise the exchanges (although note that a bilateral approach is also possible). After the signature of the CARF MCAA ( and similarly to the CRS MCAA ) , the CARF MCAA is activated only after several subsequent notifications are made. Furthermore, as with the CRS MCAA, the bilateral exchanges under the CARF MCAA are only activated once both sides to the exchange relationship activate the exchanges with each other. There is a CARF MCAA signing ceremony due to take place at the 2024 Global Forum Plenary meeting. Participation can be at the event (by a duly authorised person) or be depositing the previously signed documents at the meeting (or even remotely). It will also be possible to sign the CARF MCAA after the 2024 Global Forum Plenary meeting. What does implementing the CARF involve? Implementing the CARF involves several building blocks, closely aligned to the CRS. A domestic legislative framework is needed to require the reporting intermediaries to collect and report the information for exchange , and an international legal framework is needed to provide for the international exchange of the information (see the CARF MCAA above) . IT and administrative frameworks are needed to format the information reported and exchange it (i.e. the CARF XML Schema and a transmission system, which, as with all tax information exchange s , can be the Common Transmission System). Confidentiality and data safeguarding requirements must be met, in relation to which the Global Forum has well established assessment and support programmes.