Author: FinTax
Basic Impact Logic of CARF
With the advancement of CARF, the ability of national tax authorities to obtain information on overseas crypto-assets will be significantly enhanced.
CARF does not create tax rules. Instead, through the automatic exchange of information, it enables tax authorities to identify crypto-asset income earned abroad by their tax residents.
Based on information transparency, tax recovery and enforcement actions on undeclared income may become the norm.
For countries that have committed to joining CARF and have enacted supporting legislation, information on crypto-asset accounts and transactions held by their tax residents on overseas exchanges will be exchanged among national tax authorities via the CARF mechanism. Tax authorities can then cross-check this information with tax filings and impose penalties for underreporting or non-reporting.
Countries That Have Joined CARF: Information Transparency Enables Retrospection
Taking the UK as an example, starting from 2026, it has required local crypto-asset service providers to systematically collect user transaction data for tax verification. Her Majesty's Revenue and Customs (HMRC) has explicitly stated that it will use relevant data to cross-check individuals' tax returns. If undeclared crypto-asset gains are discovered, HMRC will pursue tax recovery and impose penalties according to the law.
In such jurisdictions, once crypto-asset transaction information comes into the view of tax authorities through CARF, there is a real risk of retrospective taxation on previously undeclared overseas crypto income.
Key Risk Point: Crypto-Asset Liquidation
Mainland China has not yet joined CARF. In the short term, its tax authorities cannot automatically obtain information about crypto-asset accounts held by Chinese residents on overseas exchanges through CARF. Assuming current policies remain unchanged, the risk of being directly discovered and having taxes pursued by domestic tax authorities merely for holding crypto-assets overseas is relatively low.
However, this assessment is limited to crypto-assets remaining within the crypto ecosystem. Once crypto-assets are converted into fiat currency and enter bank accounts or other financial account systems, the risk pathway changes.
Mainland China has fully implemented CRS since 2018 and conducts automatic exchange of financial account information with multiple jurisdictions. Under the CRS framework, there are already precedents of actual enforcement by Chinese tax authorities pursuing tax recovery based on overseas financial account information.
Therefore, even though Mainland China has not yet participated in CARF, once crypto-assets are liquidated through overseas exchanges and stored in financial accounts, the related information may still be transmitted back to domestic tax authorities through CRS or other channels.
Existence of Other Tax Information Channels
Under existing tax treaties and enforcement cooperation mechanisms, national tax authorities can exchange tax-related information on specific taxpayers through case-by-case investigative collaboration.
If tax authorities of other countries discover large-scale tax evasion or illegal transactions involving Chinese residents during their enforcement actions, relevant leads may also be provided to the Chinese side through bilateral mechanisms.
