Cryptoasset Reporting Framework, Common Reporting Standard amendments, and seeking views on extension to domestic reporting

Question 1

Summary

Accepted Answer

Subject of this consultation

The subject of this consultation is the UK’s implementation of the OECD’s Cryptoasset Reporting Framework and Amendments to the Common Reporting Standard package, announced by the government in an International Joint Statement on 10 November 2023.

Scope of this consultation

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.

This consultation is set out in 4 main sections:

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.
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 2 potential amendments to regulations.
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.
Summary of the consultation questions.

Who should read this

The government would like to hear from businesses; legal, accountancy and tax advisory firms; representative bodies and trade associations; academic institutions and think tanks, and any concerned stakeholders with an interest in the implementation of the CARF or CRS. In particular, Cryptoasset Service Providers and financial institutions who might be within scope of the rules should read this document.

Duration

The consultation will run for 12 weeks from 6 March 2024 to 29 May 2024.

Lead officials

The lead officials are:

CARF: Hywel Griffith, Philippa Lewis, and John Sandeman, of HM Revenue and Customs (HMRC)

CRS: David Smith, Elizabeth McDowall and Hugh Dorey, of HM Revenue and Customs (HMRC)

How to respond or enquire about this consultation

Responses to this consultation and enquiries can be emailed to eoi.policy@hmrc.gov.uk or by post to:

HMRC Exchange of Information Team

B7.28 Stratford Regional Centre

Central Mail Unit

Newcastle

NE88

Telephone enquiries about this consultation should be directed to Hywel Griffith on 03000 565 966 (from a text phone prefix this number with 18001).

Additional ways to be involved

HMRC will engage directly with representative bodies and affected businesses through existing stakeholder forums but it welcomes views from all interested parties. The timing, format and venue of meetings will be informed by expressions of interest received. Expressions of interest should be emailed to eoi.policy@hmrc.gov.uk.

After the consultation

The government will consider the comments made by respondents and will publish a summary of responses. The government will also consult on draft regulations before implementing the new rules.

Getting to this stage

In March 2022, the OECD consulted on a new global tax transparency framework to provide for the reporting and exchange of information with respect to cryptoassets, as well as proposed amendments to the CRS for the automatic exchange of financial account information between countries.

The UK was closely involved in the development and agreement of what became the Cryptoasset Reporting Framework and Amendments to the Common Reporting Standard published in June 2023. In November 2023, the UK announced its commitment to implement the CARF and amendments to the CRS.

Previous engagement

HMRC has engaged with interested stakeholders during and since the OECD consultation to identify key issues that need to be addressed when implementing the framework.

Question 2

Foreword

Accepted Answer

The UK aspires to lead the way in international tax transparency. The UK was one of the first signatories to the CRS, which enables Automatic Exchange of Information (AEOI) on financial accounts between over 100 tax authorities. The CRS has made it more difficult to evade tax liabilities using offshore accounts. Since 2016 HMRC has secured around £586 million directly from AEOI agreements. In the years since the publication of the government’s No Safe Havens Strategy in 2013 the UK has championed and introduced more automatic data sharing initiatives to tackle avoidance and evasion.

Whilst AEOI data has been hugely valuable in helping us tackle offshore non-compliance, we are not complacent. To build on the successes of the CRS and keep pace with innovations in the financial sector, the UK and international partners have agreed amendments to the CRS and the introduction of the CARF. Ensuring the tax transparency framework applies to new financial activities and products will foster innovation, by giving people and businesses the confidence they need to plan and invest for the long-term.

The modernisation of data use and the simplification of the tax system are priorities for the government and HMRC. Responses to the Tax Administration Framework Review (TAFR) have endorsed the Office of Tax Simplification’s recommendations on the use of third-party information and data. In particular, when considering the data that should be submitted by third parties to HMRC, and the format that this should be in, HMRC should take other data sharing initiatives into consideration. That is why the government is asking for input on aligning domestic third party reporting with the international reporting required under the CARF and CRS.

The rules will come into force in 2026 at the earliest for exchanges in 2027, and the government will ensure that businesses are given certainty on the scope of the UK’s implementation in sufficient time to prepare.

I would encourage the widest possible range of stakeholders to give their views through this consultation process. We have an opportunity to foster innovation, be world-leaders in tax transparency, and transform and simplify third party reporting in the UK with this package. Together we can ensure the UK’s implementation of the CARF and amendments to the CRS is both effective and proportionate.

Nigel Huddleston MP
Financial Secretary to the Treasury

Question 3

1.  Cryptoasset Reporting Framework

Accepted Answer

Introduction to the CARF

The growth of the cryptoasset market has created significant challenges to tax transparency frameworks like the CRS that are integral to tackling tax evasion, tax avoidance and non-compliance. Cryptoassets can be transferred and held without interacting with traditional financial intermediaries and without any central administrator having full visibility. In addition, cryptoassets as an asset class do not generally fall within the scope of existing AEOI frameworks.

In response, the G20 gave the OECD a mandate to develop the CARF, a dedicated global tax transparency framework, which provides for the automatic exchange of tax information on transactions in cryptoassets in a standardised manner with the jurisdictions of residence of taxpayers on an annual basis.

How the CARF Works

Broadly, the CARF works as follows:

reporting Cryptoasset Service Providers (RCASPs) must collect details on cryptoasset users and transactions in cryptoassets
RCASPs must conduct the required due diligence
RCASPs must report the data to tax authorities
tax authorities must exchange the data with the partner jurisdiction where the taxpayer is resident
the information is available for use by tax authorities to identify tax non-compliance
tax authorities must enforce compliance with the framework

The government takes data security seriously. Exchanges of information will only take place with treaty partners who have appropriate confidentiality and data safeguards in place. These safeguards are evaluated using, for example, the Information Security Management process that monitors and reviews the Standard for Automatic Exchange of Financial Account Information in Tax Matters (see Confidentiality and Information Security Management toolkit).

Section 5 of the CARF Multilateral Competent Authority Agreement details the confidentiality rules and safeguards that apply for all exchanges. All jurisdictions implementing the CARF must undergo a Confidentiality and Data Safeguards assessment by the OECD Global Forum pre- and post-exchanges. These require jurisdictions put in place:

a legal framework ensuring the confidentiality and appropriate use of exchanged information
systems and procedures to ensure that the legal framework is respected in practice
an overall information security management framework that adheres to internationally recognised standards
enforcement provisions and processes to address confidentiality breaches and misuse of information exchanged

Policy Objectives of the UK in Implementing the CARF

Identify tax non-compliance

The primary purpose of the CARF is to provide HMRC with access to standardised information that will be used to help identify and tackle tax non-compliance, including by supporting those who want to get their tax right first time.

Support wider growth of the sector via promoting and implementing standardised rules for reporting

The CARF is a global framework, and the same rules will be implemented across all participating jurisdictions, meaning there will be one reporting regime to follow. This is preferable to multiple information regimes operating across different countries, which would create complexity for service providers and tax authorities alike.

Aim and Scope of the consultation

This consultation outlines the UK’s approach to implementing the CARF. The CARF will be added to the list of international arrangements for exchanging information at s349 Finance (No. 2) Act 2023. This will give HM Treasury the power to make regulations to implement reporting obligations for the CARF.

This consultation seeks views on the government’s proposals on optional or discretionary elements, not on the main rules or commentary. The consultation document should be read in conjunction with the OECD CARF itself.

Stakeholder engagement and next steps

The government would like to hear views from anyone who is affected by or interested in these proposals including individuals, businesses, agents, academics, non-government organisations (NGOs), and representative bodies. HMRC will engage directly with existing stakeholder networks and will consider holding meetings with interested parties. Please contact the lead official if you are interested in meeting to discuss this document.

Responses and general queries about the content or scope of the consultation can be sent by email to eoi.policy@hmrc.gov.uk, using the subject ‘CARF’.

A summary of responses will be published after the consultation closes. The government will also provide draft regulations that will set out the requirements for service providers and financial institutions in the UK in detail. A further technical consultation on draft regulations is expected to take place in 2024.

Scope and definitions

Scope of Cryptoassets covered

Section 4 of the CARF defines ‘Cryptoasset’ by reference to the use of a cryptographically secured distributed ledger or similar technology. ‘Relevant Cryptoassets’ reportable under the CARF are defined with an emphasis on useability for payment and investment purposes. It excludes Central Bank Digital Currencies and Specified Electronic Money Products.

Reporting Cryptoasset service providers

Section 4 of the CARF defines ‘Reporting Cryptoasset Service Provider’ (RCASP) as including any individuals or entities that, as a business, provide a service effectuating ‘Exchange Transactions’ for or on behalf of customers. This includes acting as a counterparty or intermediary to such ‘Exchange Transactions’ and making available a trading platform. For example, individuals or entities with control or sufficient influence over a “decentralised” exchange may be acting as RCASPs.

Scope of Users covered

Section 4 of the CARF defines a ‘Reportable User’. It means a ‘Cryptoasset User’, an individual or entity that is a customer of an RCASP, that is resident for tax purposes in a ‘Reportable Jurisdiction’, subject to certain exclusions listed in that section. RCASPs must carry out due diligence to determine where a user is resident for tax purposes. A ‘Reportable Jurisdiction’ means any jurisdiction with which an agreement or arrangement is in effect pursuant to which the United Kingdom is obligated to provide the information under the CARF, and which is identified as such in a list published by the United Kingdom.

Question 1: Do you consider the scope of, and definitions contained within, the OECD CARF rules to be sufficiently clear? Are there any areas where additional guidance would be helpful?

Reporting requirements

Nexus criteria

Section 1 of the CARF sets out the obligations of RCASPs as required within the CARF. This includes the criteria that link a CASP to the jurisdiction where it must report. These criteria are:

tax residency
incorporation or organisation under the laws of the jurisdiction where the entity has legal personality or is subject to tax reporting requirements
management from that jurisdiction
a regular place of business in the jurisdiction
where transactions are effectuated through a branch

As some RCASPs may have a nexus in more than one jurisdiction, the CARF contains a hierarchy of nexus rules. Where there are multiple jurisdictions where a nexus exists, the jurisdiction with the strongest link should be considered the primary jurisdiction for reporting purposes (such as a nexus higher on the list represents a stronger link than a nexus lower on the list).

For example, an Entity RCASP may have a nexus with 2 implementing jurisdictions of the CARF, where its tax residence is in one jurisdiction, while its place of incorporation is in a different jurisdiction. To prevent RCASPs from being subject to duplicate reporting requirements in multiple jurisdictions under such circumstances, a hierarchy of nexus criteria requires the RCASP to report where it has the strongest link (in this case, in the jurisdiction of tax residence).

If an RCASP has a nexus of the same priority (for example, a place of management) in 2 jurisdictions that have both implemented the CARF and have entered into an agreement to exchange CARF information, the RCASP can report in either jurisdiction, provided it lodges a notification in the jurisdiction where it does not report.

Reportable information

Section 2 of the CARF sets out the reporting requirements with respect to ‘Cryptoasset Users’ that are ‘Reportable Users’ or that have ‘Controlling Persons’ who are ‘Reportable Users’. Information on Taxpayer Identification Numbers (TINs) required for each CARF jurisdiction will be published on the OECD website.

Section 4 of the CARF defines ‘Relevant Transaction’. RCASPs are required to report:

the full name of the type of ‘Relevant Cryptoasset’
acquisitions and disposals of ‘Relevant Cryptoassets’ against fiat currency
acquisitions and disposals of “Relevant Cryptoassets’ against other ‘Relevant Cryptoassets’
‘Reportable Retail Payment Transactions’
other ‘Transfers of Relevant Cryptoassets’ to and by the ‘Reportable User’

Timing of reportable information

The government proposes a reporting deadline of 31 May for reporting CARF information relating to the previous calendar year, to maintain consistency with CRS and minimise burdens.

Question 2: Are there any areas where additional guidance would be helpful on the nexus criteria?

Question 3: Are there any areas where additional guidance would be helpful on reportable information?

Question 4: Do you agree with the government’s proposal to align the timeframe with CRS reporting requirements?

Due diligence

Reportable Persons procedures

Section 3 of the CARF establishes the due diligence procedures for identifying ‘Reportable Persons’, including both Individual and ‘Entity Cryptoasset Users’.

RCASPs must obtain a self-certification from Individual Cryptoasset Users which requires details relating to the user including, but not limited to, their legal name and jurisdiction. An RCASP must confirm the ‘reasonableness’ of the self-certification. The RCASP is considered to have confirmed the reasonableness of a self-certification if, in the course of establishing a relationship with an Individual Cryptoasset User and upon review of the information obtained in connection with the establishment of the relationship (including any documentation collected pursuant to AML/KYC Procedures), it does not know or have reason to know that the self-certification is incorrect or unreliable. The Commentary to Section 3 provides examples to illustrate the application of the reasonableness test.

Where a self-certification fails the reasonableness test, for example because it conflicts with other information the RCASP holds about the user, RCASPs must obtain a valid self-certification or a reasonable explanation and documentation before providing services effectuating transactions to the Cryptoasset User.

Identifying Controlling Persons

For the purposes of determining the ‘Controlling Persons’ of an ‘Entity Cryptoasset User’, RCASPs may rely on information collected and maintained pursuant to Anti-Money Laundering (AML)/Know Your Customer (KYC) procedures, provided that such procedures are consistent with the 2012 FATF Recommendations (as updated pertaining to virtual asset service providers). If the RCASP is not legally required to apply AML/KYC Procedures, it must apply substantially similar procedures for the purposes of determining the Controlling Persons.

Question 5: Are there any areas where additional guidance would be helpful on the due diligence rules?

Compliance and enforcement

Penalty regime

To ensure the effective implementation of the CARF, the UK must ensure strong measures are in place to address instances of non-compliance by RCASPs and Reportable Users. The Commentary on Section 5 of the CARF details the building blocks of effective implementation for jurisdictions.

The government intends to introduce penalty provisions in the regulations implementing the CARF that are consistent, where appropriate, with its implementation of the Model Rules for Digital Platforms (MRDP). Like the CARF and CRS, MRDP is an OECD Automatic Exchange of Information framework which requires third parties to collect information on users to report to tax authorities for international exchange. In the case of MRDP, operators of digital platforms are required to collect information on the income realised by those offering accommodation, transport and personal services through platforms and to report.

To align with the structure in MRDP, we propose penalties for the following categories:

failure to register: to ensure mandatory registration for RCASPs, including those that do not have information to submit in that period
late returns
failure to notify individual reportable persons that the RCASP has submitted information about them to HMRC and may be transferred to the government of another territory
failure to apply due diligence procedures
failure to obtain a valid self-certification
inaccurate or incomplete reports
failure to comply with record-keeping requirements
failure to provide information

Penalties could fall into 2 broad types:

one-off single penalties for reporting incorrect or incomplete information
initial and continuing daily penalties for failing to comply with the collection, verification, reporting and other requirements in the framework

We would welcome perspectives on whether the amounts in Part 3 of the MRDP are appropriate to ensure compliance in this context.

The CARF requires that jurisdictions should also have in place strong measures to ensure valid self-certifications are always collected for Crypto-Asset Users and Controlling Persons. We are seeking views on what would be appropriate to ensure action is taken against consistent or deliberate non-compliance.

Question 6: Do you agree that, in principle, penalties relating to CARF obligations should be consistent with structure set out above?

Question 7: Do you think that the penalty amounts in the MRDP are appropriate for the CARF?

Question 8: What additional strong measures would be appropriate to ensure valid self-certifications are always collected for Crypto-Users and Controlling Persons?

Assessment of impacts

Exchequer impact

Year	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Exchequer impact (Rounded to £5m)	£0	£0	£0	£35m	£95m	£75m

Economic impact

The measures are not expected to have any significant macroeconomic impacts.

Impact on individuals, households, and families

These measures are not expected to have a direct impact on individuals who are customers of RCASPs. These measures are not expected to have an impact on family formation, stability, or breakdown.

Data on reportable users of RCASPs in scope will be collected and provided to HMRC. This data will be exchanged with other tax authorities when appropriate. The information will be used to identify and risk assess the individual. A Data Protection Impact Assessment will be undertaken for regulations introduced using this power.

Equalities impacts

It is not anticipated that there will be impacts for groups sharing protected characteristics.

Impact on businesses and Civil Society Organisations

This measure is likely to have a significant impact on the RCASPs in scope. RCASPs can include both entities and individuals effectuating exchange transactions as a business. HMRC is working to understand the scope of impacts and associated costs further. The consultation process will also enable HMRC to establish the costs with more certainty.

One-off costs include new IT infrastructure, purchasing or updating new software. Familiarisation costs are expected, training and hiring staff to deal with new data collation and processing. Ongoing costs will include onboarding customers in line with AML requirements and annual packaging and submission to HMRC of reportable data collected.

Impact on HMRC or other public sector delivery organisations

HMRC will need to make changes to IT systems to support these changes in addition to some staff costs to support customers and process the extra data received. Work is ongoing to quantify those costs.

Other Impacts

Other impacts have been considered and none has been identified.

The government would welcome views from stakeholders on whether the above impacts on businesses are realistic and accurate. It would also welcome any further details about the impact of collecting, verifying and reporting the required information to HMRC, particularly in terms of the costs that may be incurred, the time taken on additional processes, and the number of RCASPs and Reportable Persons that would be affected.

Question 9: What additional one-off or regular costs do you expect to incur to comply with the requirements of the CARF? Please provide any information, such as costs, staff time or number of Reportable Persons/RCASPs affected which would help HMRC to quantify the impacts of this measure more precisely.

Question 4

2.  Amendments to the Common Reporting Standard

Accepted Answer

Introduction to the CRS

The CRS was published by the OECD in 2014 as the global standard for automatic exchange of financial account information, designed to promote tax transparency and help tackle offshore tax evasion. Over 100 jurisdictions have implemented the CRS and most of those have now been exchanging information for 6 or 7 years.

The CRS requires participating countries to gather information from financial institutions in their jurisdiction about non-resident account holders and then share the information with the jurisdiction where the account holder is resident. The information shared is identity information of the account holder (name, address, date of birth and tax identification number) and for some entity account holders, information about their controlling persons; the financial institution doing the reporting, the account number, the balance or value of the account on 31 December of the reportable year, and the amount of any income paid or credited to the account by the financial institution (interest, dividends, distributions, gross proceeds from the sale or redemption of financial assets). UK financial institutions report to HMRC annually by 31 May in respect of the preceding calendar year.

In light of the experience gained by financial institutions and governments of implementing the CRS in practice, the OECD has carried out a comprehensive review and determined that some amendments are needed. The scope of the CRS has been expanded to include Specified Electronic Money Products and Central Bank Digital Currencies, and more detailed reporting requirements have been introduced to improve reporting outcomes and avoid duplication of reporting under the CARF. A new Non-Reporting Financial Institution category has been introduced for Investment Entities that are genuine non-profit organisations, and a new Excluded Account category for capital contribution accounts. Finally, the Commentary to the CRS has been expanded to include additional clarifications and previously published Frequently Asked Questions.

The government will implement the amendments to the CRS as set out in the OECD package. This consultation seeks views on optional elements in the UK’s implementation of the amended CRS rules as well as views on 2 potential amendments to the regulations: introducing a mandatory registration requirement for reporting Financial Institutions and reforming the penalty provisions.

Amendments

Digital financial products

The scope of the CRS has been extended to bring in certain digital financial products that can be used as alternatives to traditional financial accounts, to create a level playing field and reduce opportunities for CRS avoidance.

Specified Electronic Money Products (SEMP) are defined as ‘digital representations of a single fiat currency, issued on receipt of funds for the purpose of making payment transactions, represented by a claim on the issuer denominated in the same fiat currency, accepted by a natural or legal person other than the issuer, and by virtue of regulatory requirements to which the issuer is subject, redeemable at par for the same fiat currency upon request of the holder of the product’. For example, a prepaid online account or physical card that can be used to store money or pay for goods and services.

However, there is a de minimis limit which effectively carves out low-value SEMPs. Whilst the definition of Depository Account is amended to include a (notional) account that includes all SEMPs held on behalf of a customer, such an account is excluded from reporting if the rolling average 90-day end-of-day aggregate account balance or value during any period of 90 consecutive days did not exceed USD 10,000 at any day during the reporting period. Also, SEMPs do not include products used solely to transfer funds and that cannot be used to store value.

Central Bank Digital Currencies (CBDC) are also brought into scope, and defined as any official currency of a jurisdiction, issued in digital form by a Central Bank. An account that holds one or more Central Bank Digital Currencies for the benefit of a customer is a Depository Account.

New reporting requirements

Additional data is required to be reported, to improve the usability of data for tax administrations and increase the efficiency of risk assessment and compliance work.

The additional data is:

what roles a Controlling Person has in relation to an Entity Account Holder, and what roles an Equity Interest Holder has in an Investment Entity; for example, shareholder, settlor, trustee, beneficiary
whether the account is a Pre-existing Account or a New Account
whether a valid self-certification has been obtained
whether the account is a joint account, and the number of joint Account Holders
the type of Financial Account, such as Depository, Custodial, Equity or Debt Interests, or Cash Value Insurance Contract or Annuity

Non-profit entities

Charities and other genuine non-profit entities may meet the definition to be Investment Entities and therefore have due diligence and reporting obligations. However, experience has shown that such entities are low risk in terms of CRS circumvention and reporting can be burdensome. The amended CRS creates a new, optional category of Non-Reporting Financial Institution, known as a Qualified Non-Profit Entity, for non-profit entities that meet certain conditions, as set out in subparagraph D(9)(h) of Section 8 of the CRS.

The UK intends to designate Qualified Non-Profit Entities as Non-Reporting Financial Institutions.

Question 10: Do you agree with the government’s approach to Qualified Non-Profit Entities?

Capital contribution accounts

The amended CRS creates a new category of Excluded Account, capital contribution accounts, which are used to hold frozen funds for the incorporation of a new company or a pending capital increase. Such accounts are excluded, provided that certain safeguards are in place to avoid misuse of the exclusion.

Interactions with CARF

The amended CRS clarifies that derivative financial instruments referencing cryptoassets are Financial Assets for CRS purposes. It also amends the definition of Investment Entity to include investing in cryptoassets as a type of activity that will bring an Entity within the scope of the CRS.

To avoid duplicated reporting under both the amended CRS and the CARF, there is a rule that, unless a Reporting Financial Institution elects otherwise, gross proceeds from the sale or redemption of Financial Assets are not required to be reported if such gross proceeds are reported by the Reporting Financial Institution under the CARF.

Question 11: Do you agree with the proposal to have an election to ignore the switch-off and report under both regimes?

Question 12: Do you consider the scope of, and definitions contained within, the rules to be sufficiently clear? Are there any areas where additional guidance would be helpful?

Potential additional changes to regulations

Mandatory registration requirement

UK financial institutions are currently required to make a return to HMRC setting out the information required to be reported under the CRS. However, for Reporting Financial Institutions that have determined that they do not have reportable account holders, there is no requirement to register with HMRC’s Automatic Exchange of Information (AEOI) service. This means that HMRC does not have complete visibility over the UK population of Reporting Financial Institutions, all of which have obligations to carry out CRS due diligence on account holders.

The UK intends to introduce a mandatory registration requirement, so that all entities within the CRS definition of Reporting Financial Institution will be required to register with HMRC’s AEOI service, irrespective of whether or not they have information to report. This will enable HMRC to gain assurance that CRS due diligence rules are correctly being applied. Many other CRS jurisdictions already have such a requirement. UK financial institutions will not however be required to make annual nil returns.

Question 13: Do you agree with government’s proposal to introduce a mandatory registration requirement?

Reform of penalty provisions

The government intends to reform the penalty provisions in the regulations implementing the CRS to make the structure and amounts of the penalties consistent with its implementation of the Model Rules for Digital Platforms (MRDP) and the CARF. The penalty provisions for MRDP are The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023.

We propose the penalties for the following categories:

failure to register for AEOI: to ensure mandatory registration for Reporting Financial Institutions, including those that do not have reportable accounts
late returns
failure to notify individual reportable persons that the financial institution has submitted information about them to HMRC and may be transferred to the government of another territory
failure to apply due diligence procedures
failure to obtain valid self-certifications where required
inaccurate or incomplete reports
failure to comply with record-keeping requirements
failure to provide information

Penalties fall into 2 broad types:

one-off single penalties for reporting incorrect or incomplete information
initial and continuing daily penalties for failing to comply with the collection, verification, reporting and other requirements in the framework

We would welcome perspectives on whether the amounts in Part 3 of the MRDP are appropriate to ensure compliance in this context.

The CRS requires that jurisdictions should also have in place strong measures to ensure valid self-certifications are always collected where required. We are seeking views on what would be appropriate to ensure action is taken against consistent or deliberate non-compliance.

Question 14: Do you agree that, in principle, penalties relating to CRS obligations should be consistent with those set out above?

Question 15: Do you think that the penalty amounts in the Model Rules for Digital Platforms are appropriate for the CRS?

Question 16: What additional strong measures would be appropriate to ensure valid self-certifications are always collected where required?

Exchequer impact assessment

Year	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
Exchequer impact (£m)	£0m	£0m	£0m	negligible	negligible	negligible

Economic impact

The measures are not expected to have any significant macroeconomic impacts.

Impact on individuals, households, and families

This measure is not expected to have an impact on individuals as it only affects financial institutions. These measures are not expected to have an impact on family formation, stability, or breakdown.

A Data Protection Impact Assessment will be undertaken for regulations introduced as part of these measures.

Equalities impacts

It is not anticipated that there will be impacts for groups sharing protected characteristics.

Impact on businesses and Civil Society Organisations

This measure is expected to have a significant impact on reporting financial institutions that are newly brought within scope of the rules and those that will need to update existing systems. Some civil society organisations will be taken out of scope and therefore have reduced costs as a result of this measure.

One-off costs include familiarisation with the changes and could include purchasing or updating software. Continuing costs could include providing HMRC with more information. Although affected businesses may have to provide additional information to HMRC, customer experience is expected to stay broadly the same as additional information is expected to be generated through normal IT processes.

Impact on HMRC or other public sector delivery organisations

HMRC will need to make changes to IT systems to support these changes in addition to some staff costs to support customers and process the extra data received. Work is ongoing to quantify those costs.

Other Impacts

Other impacts have been considered and none has been identified.

The government would welcome views from stakeholders on whether the above impacts on businesses are realistic and accurate.

Question 17: Do respondents have any comments on the assessment of impacts of these proposals?

Question 5

3.  Seeking views on domestic reporting

Accepted Answer

Introduction to domestic reporting

The proposed CARF and existing CRS do not require reporting entities to provide information on UK resident taxpayers. Instead HMRC currently uses its data gathering powers in Schedule 23 of Finance Act 2011 to issue notices to certain UK financial institutions and cryptoasset service providers to obtain the relevant information. In particular, through Bank and Building Society Interest (BBSI) returns, HMRC requires UK banks and building societies to submit information annually about interest paid or credited to ‘reportable persons’ in the UK. The government’s consultation Tax Administration Framework Review – Information and Data consultation discussed moving to more standardised approaches to obtaining third party data and one approach tested was the use of a set schema.

Overall, stakeholders were broadly supportive of the idea of implementing a schema to obtain third party data with some caveats, for example the need to have sufficient lead-in times. Some stakeholders also suggested that any implementation of a schema should be aligned with internationally used schema, for example CRS, and that proper consideration should be given to the financial and administrative burdens any new obligations would bring.

While the government continues to consider responses to the Tax Administration Framework Review – Information and Data consultation, it is additionally seeking views here on the potential benefits and drawbacks of introducing domestic CRS and CARF reporting by including the UK as a reportable jurisdiction.

All UK financial institutions in scope for CRS and those in scope to report under CARF will have an interest in responding to this document.

Impact of extending to domestic reporting

The government considers there are potential benefits from extending CRS and CARF by making the UK a reportable jurisdiction including:

streamlining third party reporting requirements – introducing domestic reporting would prevent a two-tier system of third party information requests where international data is submitted using the relevant schema and domestic data is provided in response to existing third party notices. For example, domestic CRS could replace BBSI as the default method of reporting, and existing third party information powers would only be used for bespoke requests. This approach builds upon the Office of Tax Simplification’s 2021 Third Party Data paper and the Tax Administration Framework Review – Information and Data consultation. These documents considered the desirability of aligning third party data reporting requirements with existing international reporting requirements and the use of schema
more efficient use of HMRC, data-holder and taxpayer time – introducing a standardised and automatic reporting framework would reduce the time and resource spent on existing third party request processes that can involve more protracted engagement regarding formats, timelines, and follow-up requests
improved picture of risk – HMRC would have the same full picture of risk for both domestic and offshore matters for UK taxpayers. The additional information HMRC could obtain, for example account balances, would improve its ability to detect and tackle non-compliance. In addition domestic reporting will provide opportunities for HMRC to help taxpayers get their tax right first time

For CRS particularly, the government recognises introducing domestic reporting will have impacts on financial institutions. This includes those that currently make reports under the CRS as well as financial institutions that, whilst they are in scope for CRS, do not have reportable accounts and therefore do not make CRS reports. The government is keen to understand the impacts for all financial institutions in scope.

The government also recognises that introducing domestic reporting for CRS would increase the amount of information that financial institutions send HMRC about UK residents. At present HMRC uses its information powers to obtain details of interest paid. In addition to interest, domestic CRS would require financial institutions to send HMRC details on account balances or values, and certain dividends, distributions, gross proceeds from the sale of financial assets.

Question 18: What are your views on extending CARF by including the UK as a reportable jurisdiction? What impacts would this have on RCASPs in scope? Are there other issues, regulatory or legal, that will need further discussion?

Question 19: What are your views on extending CRS by including the UK as a reportable jurisdiction? What impacts would this have on reporting entities in scope? Are there other issues, regulatory or legal, that will need further discussion?

Question 20: If the UK were to decide to introduce domestic CARF and CRS reporting, what are your views on implementing to the same timeline as the international CARF/CRS2 package (information collected in 2026, exchange in 2027)?

Question 6

4.  Summary of consultation questions

Accepted Answer