Written by: FinTax
Related news: Hong Kong commits to implementing a reporting framework for crypto assets
Author: Hong Kong Government News Office
On December 13, the Hong Kong government informed the Organisation for Economic Co-operation and Development (OECD) Global Forum on Tax Transparency and Exchange of Information for Tax Purposes (Global Forum) that Hong Kong is committed to implementing a reporting framework for crypto assets to enhance international tax transparency and combat cross-border tax evasion activities.
In view of the rapid development of the crypto asset market, the OECD announced the reporting framework in June 2023 to ensure the maintenance of global tax transparency. As an extension of the current Common Reporting Standard for automatic exchange of financial account information, the reporting framework establishes a similar mechanism to automatically exchange tax information related to crypto asset accounts and transactions each year for tax residents who are users or controllers of crypto assets. To ensure that the reporting framework can be implemented fairly and effectively on a global scale, the Global Forum has invited all jurisdictions with relevant crypto asset industries and identified jurisdictions that are directly related to the reporting framework (including Hong Kong) to implement the reporting framework.
The Secretary for Financial Services and the Treasury, Hui Cheng-yu, stated: "The reporting framework is the latest global standard for tax transparency. Implementing the reporting framework is crucial for maintaining Hong Kong's reputation as an international financial and business center, and it reflects Hong Kong's commitment as a responsible tax jurisdiction to promote international tax cooperation."
Hong Kong is committed to implementing the reporting framework with suitable partners on a reciprocal basis, provided that the relevant partners meet the standards for safeguarding data confidentiality and security. Considering the latest timeline established by the Global Forum, the government has preliminarily planned to complete the necessary local legislative amendments by 2026 or earlier, and to conduct the first automatic exchange of information under the reporting framework with relevant tax jurisdictions starting in 2028.
Hui Cheng-yu added: "The government will listen to the views of relevant stakeholders and the public when preparing the necessary legislative amendments."
Hong Kong has consistently supported international efforts to enhance tax transparency and combat tax evasion. Since 2018, Hong Kong has automatically exchanged financial account information with partner tax jurisdictions annually. The relevant tax authorities can use this information for tax assessments, as well as for investigating and combating tax evasion.
FinTax Commentary:
The OECD's Crypto Asset Reporting Framework (CARF) aims to establish a uniform framework for the exchange of tax information to address the regulatory issues surrounding crypto asset taxation and provide tax authorities with more third-party data on taxpayers and their crypto asset activities. CARF requires crypto asset service providers to adhere to detailed due diligence requirements and report this information accurately and promptly to tax authorities. CARF is closely linked to the existing Common Reporting Standard (CRS), essentially extending the international automatic information exchange system defined by CRS to the crypto asset domain—crypto asset service providers are required to report the crypto asset information of their non-resident clients and automatically send this information to the tax authorities in the clients' countries, thereby enhancing tax transparency in the crypto asset sector and preventing tax evasion using crypto assets.
In addition to enhancing the transparency of crypto asset information, Hong Kong has also taken a series of measures in recent years regarding crypto asset regulation and gradually established a relatively comprehensive policy framework, including but not limited to: In November 2018, the Hong Kong Securities and Futures Commission (SFC) issued a regulatory framework for virtual assets to establish regulatory standards for virtual asset trading platforms; In 2020, the Hong Kong Monetary Authority (HKMA) introduced a licensing system for virtual asset service providers (VASPs), requiring all businesses engaged in virtual asset trading, transfer, or management to obtain a license from Hong Kong Customs; In 2022, the HKMA released a discussion paper on crypto assets and stablecoins, beginning to clarify the regulatory requirements for stablecoins. Subsequently, the SFC also launched a regulatory sandbox to allow innovative virtual asset trading platforms to test their business models in a controlled environment while ensuring compliance with existing regulatory requirements. Recently, the Hong Kong government is planning to provide tax relief for hedge funds and wealthy family offices regarding crypto assets to strengthen Hong Kong's position as an offshore financial center.
Overall, Hong Kong's commitment to implementing CARF is an important step towards aligning with international crypto regulation systems, and it is an inevitable choice for continuing to play the role of an international financial center and promoting the healthy development of the crypto asset industry. Perhaps in the short term, the enhancement of transparency brings more compliance pressure and tax risks to Hong Kong's crypto businesses and investors, which may affect the growth of Hong Kong's crypto market; however, from a long-term perspective, CARF helps prevent tax fraud and evasion through crypto assets, balancing the rapid development of the crypto market with the healthy stability of market order, establishing a sustainable environment for the crypto market, and overall aiding the crypto asset industry in transitioning from wild growth to orderly development. Therefore, Hong Kong's crypto businesses and investors should adopt a more proactive attitude towards CARF and seek professional assistance when necessary to ensure timely compliance with their tax obligations and avoid unnecessary losses and penalties.