At the beginning of this month, the Organization of Developed Countries, the OECD, passed a new global framework designed to promote reporting and the exchange of information between countries regarding crypto, in order to create transparency regarding the taxation of the assets, and enable more effective taxation of them.
The framework, Crypto – Asset Reporting Framework – CARF, was created at the request of the G20 countries that are interested in a framework for the automatic exchange of information between countries on crypto assets. The CARF was transferred to the ministers of finance and the governors of the central banks of the various countries to continue the process. The requirement for the automatic information exchange framework comes against the background of rapid adoption of the use of crypto assets, which have become an accepted financial investment asset, which, unlike traditional financial products, can be transferred and held without intermediaries.
The financial system is structured so that the intermediaries are the gatekeepers, and part of their job is to take care of identification, to check that the money is not directed to terrorist financing or money laundering, and also to withhold tax and transfer it to the tax authorities. But the crypto market has also spawned new brokers and service providers, such as crypto asset exchanges and wallet providers, many of which remain unregulated, so there is not really a complete picture of all the operations done in crypto, including the profits, to tax the investment.
The OECD notes that the developments mean that crypto-assets and related transactions are not comprehensively covered by the existing G20 Common Reporting Standard (known as CRS), which increases the likelihood of their use for tax evasion, undermining the progress made in tax transparency through the adoption of the -CRS. In accordance with the common reporting standard, in 2021, more than 100 jurisdictions exchanged information on 111 million financial accounts, covering assets of 11 trillion euros” – according to OECD data. Therefore, the G20 countries are interested in a similar standard for crypto as well, which will ensure transparency In relation to transactions, through the automatic exchange of information between countries where crypto investments are made, and the countries where investors live and where tax is paid. The exchange of information will be carried out on an annual basis, in a standard manner similar to CRS.
CARF will focus on the exchange of information on any digital representation of value recorded on the blockchain, except for transactions not for payment or investment purposes, as well as for assets already reported under the CRS. Anyone who conducts investments and crypto transactions on behalf of customers will be required to report. According to the proposal, this is a general model that will be converted into local legislation. It is also proposed to make a series of additional amendments to the CRS, to adapt it to a comprehensive coverage of digital financial products.
The tax issue is stuck, the companies are promoting workaround solutions
One of the topics that will await the next finance minister in Israel is the establishment of a comprehensive action framework in the field of crypto. In its absence, it is difficult to bring money derived from crypto investments abroad into Israel, even to pay the tax on the investments. Since tax in Israel can only be paid from an Israeli bank account, investors who wish to bring the profit to Israel to pay the tax, do not do so due to the resistance of the various banks to accept to them the money, due to money laundering considerations. Finance Minister Avigdor Lieberman was aware of this, and established an inter-ministerial team, in which representatives of all their regulators have a touch with crypto, and they conveyed their conclusions regarding the necessary regulatory framework in Israel. However, even though the team reached an advanced stage, the conclusions were not published.
In the meantime, the market is trying to find ways to circumvent the limitation, mainly by creating closed channels – that is, instead of the customer purchasing crypto for a wallet and selling it in arenas or to private individuals, brokers create a channel where the money is deposited with them for safekeeping, they purchase crypto in a legitimate arena in terms of money laundering, and when the customer is “sold “The crypto they actually give him the value of the crypto in shekels, which are easier to return to the financial system.
In Israel: a stormy year makes it possible to take advantage of losses
The tax year is coming to an end and the stormy year that has passed on the crypto industry makes it possible to use the losses as tax shields. That is – they can be offset against future profits. In order for a loss to actually occur, it is not enough for the value of the crypto investment portfolio to decrease, but the investment must be realized – the sale of the coins for fiat or the exchange of the coins for other crypto currencies. All of these create a tax event, and then the loss resulting from the difference between the currency’s buying rate and the currency’s selling rate, assuming it is lower after the significant declines experienced by the industry this year, can in the future be offset against profits. Thus, if there are currencies that have fallen, and no longer fit your investment strategy, you can exercise them and enjoy the tax shield for the future. In order to realize the loss, it is necessary to report it to the income tax, as part of the annual report after the end of the year.