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CARF Update – November 2025

Introduction to the Crypto-Asset Reporting Framework (CARF)

 

CARF stands on the shoulders of CRS, which in turn stands on the shoulders of the Foreign Account Tax Compliance Act (FATCA). FATCA pioneered the strategy for cross-border disclosure of asset holdings.

The FATCA statute and Treasury regulations identified the non-U.S. banks and other financial entities needed to enforce the regime and conscripted them to serve as the IRS’s deputies. The “stick” for this extraterritorial deputization was an effective bar—via a 30% gross penalty—on access to U.S. capital markets for any financial entity and all its clients unwilling to do the IRS’s bidding.

The Crypto-Asset Reporting Framework (CARF) is a structured set of rules and guidelines designed to facilitate the transparent, consistent, and secure reporting of transactions involving crypto assets. European governments entered into agreements with the United States to codify FATCA’s requirements into their own domestic laws, in exchange for a commitment that the United States would support a global version of FATCA at the OECD. That was a lie.

The FATCA intergovernmental agreements provided the blueprint for the more universal FATCA, known as the Common Reporting Standard (CRS).

The main purpose of a Crypto-Asset Reporting Framework is to ensure effective oversight of crypto-related transactions for tax, anti-money laundering (AML), and counter-terrorism financing (CTF) purposes. By mandating the collection, verification, and sharing of relevant information, the framework aims to:
  • Increase transparency in the crypto asset market
  • Combat tax evasion and illicit financial activities
  • Promote compliance with international regulatory standards
  • Protect the integrity of financial systems
Organizations such as the Organisation for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF) have published guidelines and recommendations for crypto asset reporting. These efforts seek to align national frameworks and facilitate international cooperation, recognizing that the decentralized nature of crypto assets often transcends traditional borders.

i. A Reporting Crypto-Asset Service Provider (RCASP) reports on relevant transactions rather than income or asset value, specifically for reportable Crypto-Asset Users.ii. Under CARF, the reporting party is any entity or individual conducting a relevant transaction.iii. Crypto assets that have never been transacted—for example, Bitcoin purchased years ago and held without further activity—are only reported once a transaction occurs. In effect, this approach is akin to waiting for a submarine to surface before attacking.

A major difference between CRS/FATCA and CARF arises from the infamous “shell bank loophole” identified by the U.S. Senate Finance Committee. Under FATCA and CRS, Professionally Managed Investment Entities (PMIEs) are not required to report on themselves.CARF addresses this issue by looking through PMIE account holders and reporting on their controlling persons, regardless of the parent entity’s status. The PMIE remains classified as a Financial Institution (FI), resulting in potential duplicate reporting by both the PMIE and the underlying Crypto-Asset Service Provider (CASP).

Acquisition of Goods Direct purchases of goods and services with crypto remain limited, as crypto assets are usually converted into fiat currencies before use. A crypto investor may hold millions in digital assets, but until spent, those holdings are functionally worthless. To spend them, conversion into fiat is typically required through an exchange. Thus, identifying potentially reportable parties often begins when they convert digital assets into fiat or other usable forms. Owners generally use exchanges directly or through intermediaries for this purpose.
Acquisition of Crypto Assets: i. When purchased with fiat currency — report the aggregate gross amount paid. ii. When exchanged for other crypto assets — report the aggregate fair market value (FMV) of the acquisition.
Disposal of Crypto Assets: i. When sold for fiat currency — report the aggregate gross amount received. ii. When exchanged for other crypto assets — report the aggregate FMV of the disposal.
Reportable Retail Payment Transactions: i. Report the aggregate FMV of products purchased.
Transfers to Wallet Addresses Not Covered Above: i. Report the aggregate FMV of transferred amounts. ii. Wallet transfers by a reportable user must be categorized by transfer type if known by the RCASP. iii. If an RCASP transfers to a wallet not known to belong to a financial institution or virtual asset service provider, report the aggregate number of units transferred, not the transaction count. iv. In such cases, the RCASP omits the wallet address from the CARF report but must retain it for potential regulatory follow-up.
Transaction Categories and Examples:
  • Exchange Transactions: Swaps between crypto and fiat, or between crypto types (e.g., buying Bitcoin with USD, swapping Ethereum for stablecoins, or wrapping ETH to wETH).
  • Transfers: Movement of crypto to or from an account not maintained by the same RCASP (e.g., sending crypto to a self-hosted wallet or receiving from an external one).
  • Reportable Retail Payments: Payments processed by an RCASP for merchants accepting crypto exceeding a $50,000 threshold.
Since reports must be filed per crypto asset type, multiple reports may be required for a single user if they acquire, dispose of, or hold various asset types or nonfungible variations with differing per-unit values.

RCASP (Reporting Crypto Asset Service Provider) CARF rules apply to any individual or entity that, as a business, provides a service effectuating (enabling or carrying out) exchange transactions on behalf of customers.

Entities considered RCASPs include:

  1. Centralized crypto exchanges (with or without custodial services)
  2. Crypto brokers and dealers (acting as counterparties or intermediaries)
  3. Token issuers (engaged in creating and issuing crypto assets)
  4. Operators of crypto-asset ATMs
  5. Market makers
  6. Software providers (only if they also operate an exchange; those solely developing or selling apps are excluded)
  7. Decentralized exchanges (DEXs) where a party exercises control or significant influence, such as through smart contracts or protocol governance
  8. DAOs (Decentralized Autonomous Organizations) that are not recognized as legal entities
  9. Businesses purchasing crypto assets from issuers for resale and distribution to customers.

Individuals or entities offering such services only on a very infrequent or non-commercial basis are not considered RCASPs.Merely providing a platform or bulletin board to post buy, sell, or conversion prices does not qualify an entity as an RCASP, since it does not enable users to complete exchange transactions. Similarly, the creation or sale of trading software or apps alone does not make one an RCASP unless that software or app is used by the provider to conduct or facilitate exchange transactions.

A. Using an RCASP in a Non-Participating CARF Jurisdictioni. As of October 2025, only 69 jurisdictions have committed to implementing CARF.ii. However, many countries (e.g., EU and Switzerland) apply CARF rules extraterritorially, extending them to RCASPs located anywhere if they service domestic tax residents. iii. Additional countries are expected to adopt CARF under OECD pressure.
B. Moving Tax Residence to a Non-Participating CARF Jurisdictioni. Relocating tax residence is not a simple solution.ii. Under CRS, enhanced due diligence applies when residence is recently shifted to a high-risk residence-by-investment jurisdiction (e.g., Malta, Cyprus, UAE, Monaco, or Caribbean tax havens).
C. Using a Nominee RCASP (Financial Institution) in a Non-Participating Jurisdictioni. Using nominees, agents, or custodians to hold assets is generally ineffective, as CARF requires reporting on the ultimate beneficial owner (UBO) or the individual controlling the account—not the intermediary.
  • One potential structure outside CARF’s scope involves a special purpose vehicle (SPV) acting as a custodial institution in a non-participating jurisdiction, holding an entity that owns crypto assets.
  • The SPV must be structured as a trust, such as a UK non-resident trust with a trustee based in Svalbard.
  • The underlying entity acts as a nominee for the trust.
  • Accordingly, the RCASP treats the SPV custodial institution as the account holder, not the underlying entity.
  • Therefore, the RCASP does not report on the nominee entity since the account holder—the trust—is classified as a financial institution (custodial institution).
  • The custodial institution itself has no CARF reporting obligations because it is located in Svalbard, a CARF non-participating jurisdiction.

Svalbard cannot be part of any tax treaty due to Article 8 of the 1925 Treaty of Svalbard. This article stipulates that no country may receive any form of tax benefit or preferential treatment in relation to activities conducted in Svalbard — all 48 signatory nations must be treated equally. Therefore, if one signatory were to enter into a tax treaty, it would create unequal treatment and violate the treaty’s core principle of non-discrimination. The signatories to the treaty include countries such as Russia, China, and North Korea, among others.Secondly, the United Kingdom will not abolish its non-resident trust structure. A non-resident trust is a trust governed by UK law, but with the trustee residing outside the UK. This structure remains a key feature of the UK’s trust and tax framework, often used for estate planning and asset protection purposes.

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Table of Contents: CARF Update – November 2025

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Derren works with International Entrepreneurs, Expats and Investors who are exposed to multiple jurisdictions. Tax optimization. Asset Protection. Compliance Obligations. Strategies include second citizenships, second residencies, trusts, foundations, insurance wrappers and other offshore structures.

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