Following public consultation at the OECD, the rules and commentary for both the Cryptoasset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS 2.0) have been agreed at the international level to ensure consistency across jurisdictions. However, the package contains optional elements, and the practical implementation is not prescribed in detail. This consultation sets out the details of the rules and invites views on the optional elements and the UK’s proposed implementation of the rules.

The consultation comprises four main sections:

1. Cryptoasset Reporting Framework (CARF) – the government is consulting on the UK implementation of the OECD CARF and the government’s approach to its optional elements. The CARF provides a new framework for automatic exchange of tax-relevant information on transactions in cryptoassets.

2. Common Reporting Standard (CRS) – the government is consulting on the UK implementation of the OECD amendments to the CRS, which update the rules to include new types of assets and improve its operation. It is also seeking views on two potential amendments to regulations.

3. Seeking views on domestic reporting – following on from the ‘The Tax Administration Framework review – information and data’ consultation, the government is seeking views on the potential benefits and drawbacks of extending the CARF/CRS international standards to require UK reporting entities to include information on UK residents.

4. Summary of the consultation questions.

Deadline for comments is 29 May 2024.

“Today’s announcement of co‑ordinated international action on cryptoassets is a major step forward, marking another important milestone towards the widespread and co-ordinated approach to combat tax evasion through greater transparency and exchange of information,” Secretary-General Cormann said.

“We strongly welcome the extensive support being shown for quick action to make the international exchange of information collected under the OECD standard on cryptoasset reporting a reality. The international community can count on the OECD and the Global Forum on Transparency and Exchange of Information for Tax Purposes to ensure that the tax transparency architecture remains both up-to-date and effective going forward.”

The Crypto-Asset Reporting Framework (CARF) is a key component of the International Standards for Automatic Exchange of Information in Tax Matters developed by the OECD under a G20 mandate. It provides for the automatic exchange of tax-relevant information on cryptoassets and comes against the backdrop of a rapid adoption of the use of cryptoassets for a wide range of investment and financial uses.

The consultation sets out HM Treasury’s proposed approach to delivering a Digital Securities Sandbox (DSS), which will be the first financial market infrastructure sandbox delivered under the powers granted as part of the Financial Services and Markets Act 2023. 

The DSS will facilitate the testing and adoption of digital securities across financial markets. Through the DSS, industry will be able to set up financial market infrastructures that utilise digital asset technology, which can perform a number of activities in relation to digital securities under a temporarily modified legislative and regulatory framework.

Deadline for comments is 22 August 2023.

The government is inviting comments on a potential legislative solution which aims at better "aligning the taxation of cryptoassets used in certain DeFi transactions with the underlying economic substance."

Under the proposed changes, the use of cryptoassets in DeFi transactions would no longer be treated as giving rise to a disposal for tax purposes. Instead, a tax disposal would arise when the cryptoassets are economically disposed of in a non-DeFi transaction.

Although the focus of this document is on DeFi lending and staking, the proposed tax framework outlined is also intended to apply to the lending and staking of cryptoassets which is done through an intermediary.

This consultation is the next stage of the policy making process, which last year saw the government publish a call for evidence on taxation of DeFI involving lending and staking of cryptoassets.

The deadline for comments is 22 June 2023.

This legislation, which comes into force on 1 January 2023, applies to:

• transactions entered into from tax year 2022 to 2023 onwards, and
• accounting periods that include 19 December 2022 onwards.

The reforms set out how to repeal retained EU law in financial services and replace it with a new framework tailored to the UK.

The Chancellor said to ensure the sector is prepared to "embrace and facilitate the adoption of cutting-edge technologies", the government is: 

"Setting up a Financial Market Infrastructure Sandbox in 2023, and is legislating to implement this in the Financial Services and Markets Bill (FSM Bill). This will enable firms to test and adopt new technology and innovations, such as distributed ledger technology, in providing the infrastructure services that underpin markets.

"Legislating in the FSM Bill to establish a safe regulatory environment for stablecoins – which may be used for payments – and ensure the government has the necessary powers to bring a broader range of investment-related cryptoasset activities into UK regulation.

"Publishing its formal response to the consultation on expanding the Investment Manager Exemption to include cryptoassets, which will facilitate their inclusion in the portfolios of overseas funds managed in the UK. The government intends for this change to be made through HMRC regulations this year

"Bringing forward a consultation in the coming weeks to explore the case for a central bank digital currency – a sovereign digital pound – and consult on a potential design. The Bank of England will also release a Technology Working Paper setting out cutting-edge technology considerations informing the potential build of a digital pound.

"Working with the regulators and market participants to bring forward a new class of wholesale market venue, which would operate on an intermittent trading basis. This highly innovative approach would be a global first and would act as a bridge between public and private markets, boosting the UK as a destination for all companies to get the investment they need to create jobs and grow."

The full set of reforms announced by the Chancellor can be found here.

The consultation was launched after the government announced its intention on 4 April 2022 to expand the Investment Management Exemption to include cryptoassets.