Core Insights - The U.K. and 47 other countries are implementing the Cryptoasset Reporting Framework (CARF), marking a significant shift in global crypto taxation starting in 2026 [1][4][6] - The CARF aims to bring crypto transactions under the same tax scrutiny as traditional financial assets, addressing the issue of unreported profits from cryptocurrencies [3][5] Group 1: CARF Overview - CARF was developed by the OECD to tackle the growing issue of unreported cryptocurrency profits [3] - Under CARF, crypto exchanges and service providers must collect detailed user information, including tax residency, and report annual transaction data to local tax authorities [3][6] - The framework will facilitate international data sharing among participating countries [3][4] Group 2: Implementation Timeline - The U.K. is among the first adopters, with exchanges required to gather necessary data starting in 2026 and cross-border information sharing beginning in 2027 [4] - A total of 75 countries have committed to implementing CARF, with 48 jurisdictions already moving forward [4] - The U.S. is expected to adopt the framework in 2028, with data exchanges commencing in 2029 [5] Group 3: Implications for Crypto Users - Individuals in participating jurisdictions, particularly high-net-worth traders, will face increased scrutiny regarding their crypto transactions [5][6] - The enforcement of mandatory KYC and data sharing may deter privacy-focused users, leading some to consider decentralized finance (DeFi) or self-custody wallets [7] - Unreported gains could result in audits, back taxes, interest, and penalties, with the U.K. capital gains tax on crypto potentially reaching up to 20% [7]

Core Viewpoint - Hong Kong is initiating a public consultation to implement the OECD's Crypto-Asset Reporting Framework (CARF) and amend the Common Reporting Standard (CRS), aiming for automatic exchange of crypto tax information by 2028 [1]. Group 1: Legislative and Regulatory Framework - The government plans to amend the Inland Revenue Ordinance to implement CARF and the amended CRS, demonstrating a commitment to combat cross-border tax evasion [2]. - The automatic exchange of information will be reciprocal with partner jurisdictions that meet confidentiality and security standards, with the amended CRS set for implementation in 2029 [2]. - The CARF was published by the OECD in 2023 in response to the rapid growth of the digital asset market, providing a framework for automatic exchange of crypto transaction tax information [3]. Group 2: Enhancements and Compliance Measures - The new framework includes digital financial products and enhanced reporting requirements, addressing gaps in traditional financial account information exchange [4]. - The CARF builds on the existing CRS infrastructure, applying similar transparency standards to crypto assets that process billions in trading volume across licensed exchanges in Hong Kong [5]. - The government proposes mandatory registration for financial institutions to improve identification, alongside increased penalties and enhanced enforcement mechanisms [5]. Group 3: Strategic Context - The consultation occurs as Hong Kong balances the need for digital asset innovation with compliance to international regulatory standards [7]. - The city is pursuing aggressive fintech expansion through the "Fintech 2030" strategy, focusing on data, artificial intelligence, resilience, and tokenization under the DART framework [7].

Regulatory Compliance - Hong Kong government initiates public consultation on revisions to Crypto Asset Reporting Framework (CARF) and Common Reporting Standard (CRS) [1] - Aims for automatic exchange of crypto asset tax information with partner jurisdictions reciprocally from 2028 [1] - Implementation targeted from 2029 to combat cross-border tax evasion [1]

Investment Rating - The report does not provide a specific investment rating for the industry Core Insights - The OECD adopted the Common Reporting Standard (CRS) in February 2014 to enhance tax compliance and international tax cooperation through automatic exchange of financial account information [18] - Amendments to the CRS were adopted in August 2022, expanding its scope to include electronic money products and central bank digital currencies, and strengthening due diligence and reporting requirements [19] Summary by Sections Section I: General Reporting Requirements - Reporting Financial Institutions must report information regarding each Reportable Account, including account holder details and account balances [24] - The report must identify the currency of each amount reported [28] Section II: General Due Diligence Requirements - Reporting Financial Institutions are required to use reasonable efforts to obtain Tax Identification Numbers (TINs) and dates of birth for Preexisting Accounts [28] - The information reported must include the account balance or value as of the end of the relevant calendar year [28] Section III: Due Diligence for Preexisting Individual Accounts - Specific procedures are outlined for identifying Reportable Accounts among Preexisting Individual Accounts [29] Section IV: Due Diligence for New Individual Accounts - Upon account opening, a self-certification must be obtained to determine the account holder's tax residence [37] Section V: Due Diligence for Preexisting Entity Accounts - Preexisting Entity Accounts with an aggregate balance exceeding USD 250,000 must be reviewed [41] Section VI: Due Diligence for New Entity Accounts - New Entity Accounts must also follow specific review procedures to determine if they are held by Reportable Persons [40] Section VII: Special Due Diligence Rules - Additional rules apply for determining whether an account holder is a Passive Non-Financial Entity (NFE) [43] Section VIII: Defined Terms - Key definitions related to financial institutions and account types are provided to clarify the reporting framework [46][47]