United States: OECD Proposes Rules For Intermediary Crypto-Asset Reporting, Due Diligence

On March 22, 2022, the Organization for Economic Cooperation and Development ("OECD") issued proposed rules for the collection and exchange of information on transactions involving crypto-assets.¹ The OECD intends for these rules to be incorporated into the domestic law of member jurisdictions to collect information from certain crypto-asset intermediaries residing within those jurisdictions.²

According to the OECD, the growth of the crypto-asset market, and its shift away from traditional financial institutions, "poses a significant risk that recent gains in global tax transparency will be gradually eroded."³ The OECD also fears that crypto-assets "will be used for illicit activities or to evade tax obligations."⁴ Thus, the proposed rules are intended to increase global tax transparency.⁵

The proposed rules generally would require certain intermediaries (including crypto-asset brokers, dealers, and exchange service providers) that reside, are organized, are managed, or that have a regular place of business in a particular jurisdiction to abide by certain due diligence and reporting requirements in that jurisdiction.⁶

Transactions that would have to be reported would include exchanges between crypto-assets and fiat currencies, exchanges between different type of crypto-assets, certain retail payment transactions involving crypto-assets, and transfers of crypto-assets.⁷ These transactions would be reported on an aggregate basis by type of crypto-asset and type of transaction, and information would have to be provided regarding the fiat currency and/or fair market value (in fiat currency) of the crypto-assets involved in these transactions.⁸ Intermediaries would also generally be required to provide detailed information regarding certain users that are residents of the relevant jurisdiction, including their names, addresses, jurisdictions of residence, and taxpayer identifications numbers.⁹ Regarding users that are legal entities, intermediaries would also have to report each entity's controlling persons that reside within the jurisdiction.¹⁰

Due diligence requirements would include procedures to determine the identity of their users in order to comply with these reporting requirements.¹¹ Exceptions to these reporting and due diligence requirements would apply if an intermediary were subject to similar requirements in another jurisdiction.¹²

The proposed rules are the first "building block" of three planned by the OECD.¹³ The remaining two would include the development of a framework of bilateral or multilateral agreements for the automatic exchange of information with residence jurisdiction and the development of technical solutions to support the of exchange of information.¹⁴

The OECD requests public comments on the proposed rules by April 29, 2022.¹⁵

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Footnotes

1. OECD, Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard at 6 (March 22, 2022).

2. Id.

3. Id. at 4.

4. Id.

5. Id. at 5.

6. Id. at 6, 11 (March 22, 2022). A "Reporting Crypto-Asset Service Provider" would be defined as "any individual or Entity that, as a business, provides a service effectuating Exchange Transactions for or on behalf of customers, including by acting as a counterparty, or as an intermediary, to such Exchange Transactions, or by making available a trading platform." Id. at 15. In turn, an "Exchange Transaction" would be an "a) exchange between Relevant Crypto-Assets and Fiat Currencies; and b) exchange between one or more forms of Relevant Crypto-Assets." Id. A "Relevant Crypto-Asset" would mean any "Crypto-Asset that is not a Closed-Loop Crypto-Asset or a Central Bank Crypto Asset." Id. A "Central Bank Digital Currency" would be defined as a "any digital Fiat Currency issued by a Central Bank." Id. A "Closed-Loop Crypto-Asset" would mean a "Crypto-Asset that: a) is issued as a means of payment with Participating Merchants for the purchase of goods or services; b) can only be transferred by or to the issuer or a Participating Merchant; and c) can only be redeemed for Fiat Currency by a Participating Merchant redeeming with the issuer." Id. And, last but not least, a "Crypto-Asset" would mean "a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions." Id.

7. Id.

8. Id. at 6, 11.

9. Id. at 11. A "Reportable User" would be defined as "a Crypto Asset User that is a Reportable Person." Id. at 16. A "Crypto-Asset User" would be a "an individual or Entity that is a customer of a Reporting Crypto-Asset Service Provider for purposes of carrying out Relevant Transactions." Id. A "Reportable Person" would mean "a Reportable Jurisdiction Person other than an Excluded Person." Id. A "Reportable Jurisdiction Person" would be defined as "an Entity or individual that is resident in a Reportable Jurisdiction under the tax laws of such jurisdiction, or an estate of a decedent that was a resident of a Reportable Jurisdiction." Id. Finally, a "Reportable Jurisdiction" would be "any jurisdiction (a) with which an agreement or arrangement is in effect pursuant to which [Jurisdiction] is obligated to provide the information specified in Section II with respect to Reportable Persons resident in such jurisdiction, and (b) which is identified as such in a list published by [Jurisdiction]." Id.

10. Id. at 11. "Controller Persons" would be defined as "the natural persons who exercise control over an Entity. In the case of a trust, such term means the settlor(s), the trustee(s), the protector(s) (if any), the beneficiary(ies) or class(es) of beneficiaries, and any other natural person(s) exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions." Id. at 16.

11. Id. at 7, 11-14.

12. See id. at 10-11 ("A Reporting Crypto-Asset Service Provider is not required to complete the due diligence and reporting requirements . . . if it has lodged a notification with [Jurisdiction] in a format specified by [Jurisdiction] confirming that such requirements are completed by such Reporting Crypto-Asset Service Provider under the rules of a Partner Jurisdiction pursuant to criteria that are substantially similar . . . ."), 20 ("'Partner Jurisdiction' means any jurisdiction that has put in place equivalent legal requirements and that is included in a list published by [Jurisdiction]").

13. Id. at 5.

14. Id. at 5.

15. Id.

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