What is CARF? A Complete Introduction

The Crypto-Asset Reporting Framework (CARF) is an international standard developed by the Organisation for Economic Co-operation and Development (OECD) to enable the automatic exchange of tax-relevant information on crypto-asset transactions between jurisdictions worldwide.

Adopted in 2023, CARF represents the most significant expansion of global tax transparency rules since the Common Reporting Standard (CRS) was introduced in 2014. It specifically addresses the unique challenges posed by crypto-assets, which have largely operated outside traditional financial reporting frameworks.

Why Was CARF Created?

The rapid growth of the cryptocurrency market created significant gaps in international tax transparency. Traditional financial reporting frameworks like CRS were designed for conventional assets and couldn't adequately capture crypto-asset transactions.

Several factors drove the creation of CARF:

• Tax evasion concerns: Without reporting requirements, crypto-assets offered an avenue for hiding wealth and evading taxes
• Regulatory gaps: Crypto transactions often occurred entirely outside the traditional financial system
• Cross-border nature: The borderless nature of crypto made it difficult for any single jurisdiction to enforce tax compliance
• G20 mandate: World leaders called for the OECD to develop a comprehensive reporting framework

What Does CARF Cover?

CARF applies to a broad range of crypto-assets and transactions. The framework defines Relevant Crypto-Assets as any digital representation of value that relies on a cryptographically secured distributed ledger or similar technology.

Covered Crypto-Assets

CARF covers most crypto-assets including:

• Bitcoin, Ethereum, and other cryptocurrencies
• Stablecoins (including algorithmic stablecoins)
• Certain NFTs that can be used for payment or investment
• Crypto-assets issued by decentralized protocols

Excluded Assets

Certain assets fall outside CARF's scope:

• Central Bank Digital Currencies (CBDCs)
• Assets already covered by CRS (tokenized securities, e-money)
• Closed-loop assets that cannot be transferred or exchanged

Reportable Transactions

CASPs must report several types of transactions under CARF:

• Exchanges between crypto and fiat: Buying or selling crypto for traditional currency
• Crypto-to-crypto exchanges: Trading one crypto-asset for another
• Transfers: Moving crypto-assets to wallets not maintained by a reporting CASP
• Retail payments: Using crypto to pay for goods and services above certain thresholds

Who Must Report?

CARF places reporting obligations on Reporting Crypto-Asset Service Providers (RCASPs). These include:

• Crypto exchanges
• Crypto brokers and dealers
• Crypto ATM operators
• Certain wallet providers that facilitate exchanges
• Any entity that provides services effectuating exchange transactions

A CASP has reporting obligations if it is tax resident in, incorporated in, managed from, or has a regular place of business in a jurisdiction that has implemented CARF.

What Information Must Be Reported?

RCASPs must collect and report comprehensive information about their users and their transactions:

User Information

• Full name
• Address
• Date of birth
• Tax residency jurisdiction(s)
• Taxpayer Identification Number (TIN)

Transaction Information

• Type of crypto-asset
• Aggregate value of transactions by type
• Number of units transacted
• Fair market value at time of transaction

Implementation Timeline

CARF is being implemented globally with data collection starting in 2026 and first exchanges in 2027:

CARF vs. CRS: Key Differences

While CARF builds on the CRS framework, there are important differences:

Aspect	CRS	CARF
Asset Focus	Traditional financial accounts	Crypto-assets
Reporting Entities	Financial institutions	CASPs
Reporting Level	Account balances	Transaction-level detail
Transfer Reporting	Not required	Transfers to non-custodial wallets

Compliance Requirements for CASPs

To comply with CARF, CASPs must:

1. Register with relevant tax authorities
2. Implement due diligence procedures to identify reportable users
3. Collect required information including TINs and tax residency
4. Validate TINs using approved validation services
5. Prepare XML reports in the required format
6. Submit reports to tax authorities by specified deadlines
7. Maintain records for the required retention period

Penalties for Non-Compliance

Jurisdictions implementing CARF are establishing penalty regimes that can include:

• Monetary fines for late or incorrect reporting
• Penalties for failing to collect required information
• Criminal sanctions for willful non-compliance
• Revocation of operating licenses

Impact on the Crypto Industry

CARF will significantly impact the crypto industry:

• Increased compliance costs: CASPs must invest in systems and processes
• Enhanced KYC requirements: More rigorous customer identification
• Reduced anonymity: Harder to use crypto for tax evasion
• Industry consolidation: Smaller players may struggle with compliance costs
• Legitimization: Compliance framework may increase institutional adoption

Preparing for CARF Compliance

CASPs should begin preparing now by:

• Assessing which jurisdictions' rules apply to them
• Reviewing and updating customer onboarding processes
• Implementing systems to collect and validate TINs
• Building or acquiring XML reporting capabilities
• Training staff on new compliance requirements
• Establishing data retention policies

Conclusion

CARF represents a watershed moment for the crypto industry, bringing it into the global tax transparency framework. While compliance will require significant investment, it also signals the maturation of the industry and may ultimately support broader adoption by creating a more regulated and trustworthy ecosystem.

For CASPs operating across multiple jurisdictions, understanding CARF requirements and implementing robust compliance systems is now essential for continued operation.