New reporting requirements for crypto-asset service providers on the horizon

  • Legal update

    14 December 2022

New reporting requirements for crypto-asset service providers on the horizon Desktop Image New reporting requirements for crypto-asset service providers on the horizon Mobile Image

On 10 October 2022, the Organisation for Economic Co-operation and Development (OECD) released model rules for the Crypto-Asset Reporting Framework (CARF) – a new tax transparency framework aimed squarely at the crypto-market and digital assets. 

Coinciding with this, several updates to the OECD’s Common Reporting Standard (CRS) have been proposed to bring new financial assets, products and intermediaries within its scope. 

The OECD report (Report), including the CARF rules and related commentary, is available here

Who needs to read it? Why? 

The Report will be of interest to: 

  • persons providing services to facilitate exchange transactions in crypto-assets for or on behalf of customers, to understand whether they are caught by the CARF and what this will mean; 
  • all existing reporting entities under the CRS, to understand how their compliance may need to change; and
  • all persons which have previously determined they fall outside of the CRS, to understand whether they may be brought within the regime as a result of the proposed updates. 
Summary of the CARF

In recent years, the OECD and G20 have led various global tax information sharing initiatives. Chief among these is the CRS – a framework for the collection and automatic exchange of financial account information.

While the CRS has been credited with improving global tax transparency, there is a risk that such gains could be gradually eroded by the emergence of crypto-asset markets. In particular, tax administrations have little visibility over crypto-asset activities, making it difficult to verify whether associated tax liabilities are being met. The CARF has been designed to counter this risk.


  • The CARF consists of rules and commentary that will be adopted into domestic law by participating jurisdictions.  
  • Through these rules, certain crypto-asset service providers with a sufficient connection to a participating jurisdiction (for example, by virtue of tax residence or place of incorporation) will be legally compelled to
    • apply prescribed due diligence measures to:
      • identify their customers; and 
      • determine their customers’ residence(s) for tax purposes (or the tax residence(s) of a customer’s controlling persons, if appropriate); and
    • where a customer is identified as being a tax resident in another participating jurisdiction, or has one or more controlling persons that are a tax resident in another participating jurisdiction (termed a Reportable User), collect and report information about the Reportable User and their relevant crypto-asset transactions to the local tax authority. 
  • Tax authorities in participating jurisdictions will exchange information collected about Reportable Users on an annual basis. This information can then be used to verify a Reportable User’s compliance with any relevant tax requirements.  
Scope of the CARF 

The scope of the CARF is set by four key concepts: 

Who will be required to comply?

The CARF applies to individuals or entities that, as a business, provide a service that brings about “exchange transactions” of relevant crypto-assets for or on behalf of customers, including by acting as a counterparty, or intermediary to exchange transactions, or making a trading platform available. These persons are termed Reporting Crypto-Asset Service Providers and will include crypto-asset exchanges, brokers, dealers and crypto-asset ATMs.

Which transactions are relevant?

Reporting under the CARF focuses on “relevant transactions” being: 

  • an exchange between relevant crypto-assets and fiat currencies; 
  • an exchange between one or more forms of crypto-assets; and 
  • a transaction that moves a relevant crypto-asset from, or to, the crypto-asset address or account of a Reportable User (other than an address or account maintained by the Reporting Crypto-Asset Service Provider for that User).
What types of crypto-assets are covered? 

The CARF applies to any digital representation of value that relies on a cryptographically secured distributed ledger or similar technology to validate and secure transactions. This will include stablecoins, certain non-fungible tokens and derivatives issued in the form of a crypto-asset. 

Exclusions are provided for certain items being: 

  • where the Reporting Crypto-Asset Service Provider determines that the crypto-asset cannot be used for payment or investment purposes; 
  • central bank digital currencies which function similarly to money held in a bank account; and 
  • specified electronic money products being products which are redeemable at any time for a single Fiat currency,

although these products may be within the scope of the amended CRS.  

Who does due diligence apply to? 

A Reporting Crypto-Asset Service Provider will conduct due diligence in respect of any individual or entity identified in connection with a relevant transaction (termed a “crypto-asset user"). Such people are deemed to be customers irrespective of the legal relationship actually in place or whether the Reporting Crypto-Asset Service Provider is safekeeping the crypto-assets on behalf of the crypto-asset user.

Summary of the CRS updates

The Report proposes multiple updates to the CRS.These include changes to enhance reporting outcomes under the CRS by introducing more detailed reporting requirements and strengthening due diligence procedures. 

The scope of the CRS will also be extended to include new digital financial products that can be considered functionally similar to a traditional bank account from the perspective of customers.These will include Specified Electronic Money Products and Central Bank Digital Currencies.

The OECD has sought to minimise any duplication of reporting under the CRS and CARF by refining the scope of each regime and providing an optional switch-off for gross proceeds reporting under the CRS if this information is already being reported under the CARF. 

What about AML/CFT? 

Many crypto-market participants will already be complying with customer due diligence requirements under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), with the Department of Internal Affairs having clearly stated that virtual asset service providers are considered financial institutions for the purposes of that Act. 

While the CARF shares a number of similarities with the AML/CFT Act, the requirements under one regime are not a substitute for the other. For instance:  

  • due diligence processes under the CARF must be strictly applied without reference to an AML/CFT style risk assessment; 
  • due diligence under both the CRS and CARF is primarily based on self-certifications obtained from a customer (and the customer’s controlling persons, where appropriate) rather than address and identify verification documents; and 
  • the CARF requires annual reporting in respect of all Reportable Users – a contrast to the AML/CFT Act which focuses on suspicious activity reporting. 

That said, the overlap between the CARF and AML/CFT should offer some opportunity for procedural alignment.

Our thoughts 

The Report is a significant development for the crypto-asset sector and will create new, potentially onerous, compliance obligations for New Zealand crypto-asset service providers.  

The release of the Report is only the first step towards implementation, with the CARF not being expected to come into effect until 1 January 2025 at the earliest. In the meantime, we can expect to see additional guidance and publications from the OECD together with targeted communications from Inland Revenue.  

Participants in the New Zealand crypto-market and financial services industries should stay informed about developments in this space.  

Further, we encourage service providers potentially affected by the CARF to consider at an early stage how their businesses may be impacted. This will ensure that they are well placed to engage with Inland Revenue on practical implementation matters as these opportunities arise.  

If you have any questions on the Report, or how the CARF or amended CRS may affect your business, please contact one of our experts.