Treasury statement on CARF and amendments to the CRS
On 10 November 2023, the Australian Treasury released a statement with 47 other jurisdictions welcoming the OECD’s Crypto-Asset Reporting Framework (CARF). In this statement, Treasury pledged its intention to swiftly implement the CARF and the amendments to the existing Common Reporting Standard (CRS). Treasury further made clear its intention to activate information exchange agreements in respect of the CARF, aiming for exchanges with other jurisdictions by 2027.
Although there is no draft Australian implementing legislation as yet, we might expect the new rules to apply from 1 January 2026. Australian Financial Institutions should start considering where changes will be required to existing due diligence and reporting systems.
For further information on the CARF and the amendments to the CRS, please refer to our previous alert Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard: Change is Coming.
Updated version of the CARF and amendments to the CRS, including draft Multilateral Competent Authority Agreement (MCAA)
The OECD released an initial version of the CARF for public consultation on 22 March 2022. A subsequent version was issued on 10 October 2022.
On 8 June 2023, the OECD further revised its work. This included:
- a draft Multilateral Competent Authority Agreement on Automatic Exchange of Information pursuant to the CARF (CARF MCAA) under which countries would agree to implement the CARF, and associated commentaries on effective implementation; and
- an addendum to the separate Multilateral Competent Authority Agreement for the existing CRS, providing updated guidance and associated comments on information required to be exchanged to accommodate expanded reporting requirements.
An amended XML schema will be published separately.
Increase in ATO activity
The ATO is taking a more assertive approach to FATCA/CRS compliance and is broadening the sectors that are the subject of an ATO inquiry. This may reflect OECD pressure to take a harder line on financial institutions and impose penalties for non-compliance.
To date, we understand the ATO has not imposed administrative penalties for non-compliance with FATCA and CRS reporting obligations. This is expected to change. Administrative penalties can be imposed for a range of violations, including:
- failing to collect a self-certification;
- making a false or misleading statement;
- failing to lodge a statement; and
- failing to keep records.
Further areas of ATO focus are discussed below.
Non-reliance on the IRS FFI List
On 17 October 2023, the ATO released a CRS Stakeholder Update advising that the Foreign Financial Institutions (FFI) list published by the Internal Revenue Service (IRS) should not be relied on to confirm that an Entity Account Holder is a financial institution.
The OECD had previously expressed concern this list was being unduly relied on in conducting due diligence on an entity’s classification as an FFI. The ATO suggested that financial institutions’ due diligence processes should be updated prior to 1 January 2025 to include additional cross-checks.
CRS circumvention schemes
On 24 July 2023, the ATO released a factsheet to increase awareness of CRS circumvention schemes in Australia. This factsheet serves to highlight the expectations of Reporting Financial Institutions that they identify and report to the ATO potential schemes established by account holders for circumventing CRS reporting requirements.
Next steps
With the coming implementation of the CARF and amendments to the CRS, at a time that the ATO is increasing its enforcement of FATCA and CRS, it will be important for Australian Financial Institutions to proactively update their systems to ensure compliance with the new rules. Financial Institutions should also ensure they are across the new guidance on the IRS FFI list and CRS circumvention schemes.
ATO activity levels are likely to lead to an increased use of the ATO Self-Review Guide and Toolkit. Please refer to our previous alert ATO Zeroes in on FATCA / CRS Process for further information.
Please contact a member of the KWM Tax Team or your usual KWM contact if you would like more details about your FATCA/CRS obligations, or how the new rules will affect you.
