Introduction to CARF Implementation
Hong Kong has initiated a public consultation to determine the best approach for implementing the international Crypto-Asset Reporting Framework (CARF). This move is a significant step towards aligning the city's crypto tax data sharing practices with global standards.
According to a press release issued on Tuesday, Hong Kong is actively seeking public input on two key areas: the practical implementation of CARF and proposed modifications to existing tax reporting standards. The announcement clearly states that this initiative is part of the local administration's broader strategy to combat cross-border tax evasion.
This standardization effort does not represent a shift in policy for Hong Kong. The announcement further clarifies that Hong Kong authorities have been consistently engaged in the annual exchange of financial account information with partner jurisdictions since 2018.
Christopher Hui, Hong Kong's Secretary for Financial Services and the Treasury, emphasized the importance of adopting CARF. He stated that this adoption would underscore the government's steadfast "commitment to promoting international tax co-operation and combating cross-border tax evasion."
Broader Tax Reporting Standards and International Initiatives
In addition to its engagement with CARF, Hong Kong is also soliciting feedback on the adoption of the Common Reporting Standard (CRS). Similar to CARF, CRS is an initiative spearheaded by the Organisation for Economic Co-operation and Development (OECD). Its primary objective is to establish international consistency in various aspects of tax reporting.
Global Adoption of CARF
The Crypto-Asset Reporting Framework (CARF) has garnered considerable support and adoption among regulatory bodies worldwide. In early November, reports confirmed that 47 national governments had collectively pledged to implement CARF promptly. Furthermore, Brazil has recently been reported to be considering its participation in this data exchange program.
However, the pace of adoption varies among countries. Towards the end of November, Switzerland announced a delay in its CARF implementation until 2027 and is still in the process of determining which countries it will share data with. In November as well, the United States was reviewing a proposal from the Internal Revenue Service (IRS) regarding its potential entry into the CARF program.
Despite these variations, the adoption of the CARF data-sharing program has been steadily increasing. A comprehensive list, maintained by the OECD and last updated on December 4, indicates that 48 nations have committed to adopting CARF by 2027, with an additional 27 countries planning adoption by 2028. The United States has set its adoption target for 2029.
These commitments bring the total number of countries that have pledged to share crypto data to 76. A separate list from the OECD reveals that 53 countries have already signed the Multilateral Competent Authority Agreement (MCAA), which serves as the legal framework enabling automatic data exchange.
Recent statistics indicate a substantial 70% year-on-year increase in the registration of foundation companies in the Cayman Islands. Legal professionals from Walkers have suggested that CARF may exclude certain structures that primarily hold crypto assets, such as protocol treasuries, investment funds, or passive foundations. This potential exclusion could make Cayman Islands foundations an attractive option for those seeking to navigate the framework.