The rapid growth of the crypto market and the increasing use of digital assets highlighted the inadequacy of existing tax transparency framework, such as the Common Reporting Standard (CRS), which did not comprehensively cover digital asset transactions. The emergence of new intermediaries like crypto-asset exchanges and wallet providers, coupled with limited regulatory oversight, further underscored the need for a framework to ensure visibility into tax-relevant transactions involving crypto-assets.

The decentralized nature of crypto-assets (including cryptocurrencies, as well as cryptography-based tokens), which operate independently of traditional financial intermediaries, created challenges for tax administrations. To address these risks, the Organization for Economic Co-operation and Development (OECD) developed the Crypto-Asset Reporting Framework (CARF) in June 2023, complementing the CRS framework. CARF aims to enhance tax transparency by enabling the automatic annual exchange of crypto-asset transaction information with the jurisdictions of residence of taxpayers.

CARF builds on the existing CRS for the Automatic Exchange of Financial Account Information in Tax Matters (AEOI) and offers a standardized approach for the automatic exchange of information on crypto-asset transactions. It establishes a mechanism for the annual automatic exchange of tax-relevant crypto-asset account and transaction information among jurisdictions where crypto-asset users or controlling persons are tax residents. The framework is intended to be implemented on a reciprocal basis with partners who meet the necessary standards for data confidentiality and security protection.

Implementation of CARF in Hong Kong

On 13 December 2024, the Hong Kong government officially committed to implementing the CARF, a new global standard for tax transparency in the digital asset space.^[1] This is not just a regulatory update; instead it represents a substantial shift that will affect how crypto businesses operate within and with Hong Kong. The first automatic exchanges between Hong Kong and relevant jurisdictions under CARF is aimed to commence from 2028, based on the initial plan that the necessary local legislative amendment can be enacted by 2026.

The Hong Kong government has also indicated that it will engage relevant stakeholders and members of the public when preparing the necessary legislative amendments.

A&M welcomes the Hong Kong government’s initiative for implementing CARF, a commitment to enhance international tax transparency and combat cross-border tax evasion.

The implementation of CARF is expected to lead to heightened oversight of crypto transactions, driving both crypto-asset firms and users to align with more rigorous compliance standards. This transformation will result in stricter due diligence and reporting processes for crypto asset transactions, strengthening the integrity of global financial systems.

How We Can Support You

Our team at A&M can offer you comprehensive services to help you navigate these new regulations. We can provide legal guidance, compliance assessments and other related services for implementing compliance processes for CARF. Please feel free to reach out to us if you have any questions or would like to discuss any aspects of the same.