## PREFACE — tarea2024069-print-pdf ## Source details **Canonical URL:** [PREFACE — tarea2024069-print-pdf](https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024069-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2024/english/tarea2024069-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2024/english/tarea2024069-print-pdf.pdf.json) --- ### Mission context and participants - A capacity development (CD) mission team visited Yerevan, Armenia during the period April 15–23, 2024. - Mission team comprised Graham Whyte (Fiscal Affairs Department) and Philipp Hochreiter (Short Term Expert, specializing in Digital Assets). - Mission financed by the European Commission (EC) under the European Neighborhood Policy and Enlargement Negotiations Program (DGNEAR). - Mission requested by the Chairman of the State Revenue Committee of Armenia (SRC) at the 2023 Spring Meetings. - Workshops and meetings included SRC staff, the Central Bank of Armenia (CBA), and the CBA Financial Monitoring Centre (FMC). ### Purpose, output, and acknowledgements - Purpose: provide CD on tax compliance issues relating to Crypto assets. - Report represents final version of the aide-mémoire submitted to Mr. Ashot H. Muradyan, Deputy Chairman, SRC on April 22, 2024, and incorporates IMF reviewers’ comments. - Report structure: Executive Summary; (I) Background; (II) Key Issues; (III) Next Steps. - SRC provided information and documents that form the basis of the report’s findings. - Acknowledged support from SRC staff, specifically Dr. Narine Fahradyan and Dr. Andranik Hakobyan. - Mission workshopped a step-by-step 8-step roadmap for implementation of new laws once passed; roadmap sets activities, responsibilities, and timelines. - Mission provided a template to facilitate creation of a structured Risk Assessment on Tax Compliance and Crypto Assets. ### Key administrative facts - Report prepared following workshops and peer engagements with OECD experts. ### Executive Summary — core points - In November 2023, the Republic of Armenia (RoA) committed to adoption of the OECD Crypto-Asset Reporting Framework (CARF) and initiation of the first CARF automatic exchange of information by 2027. - To give effect to this commitment, the RoA will need to enact domestic legislation. - No crypto asset specific provisions, including an explicit definition, exist in the RoA’s domestic tax code. - Incorporated Crypto asset miners, exchanges, and retail investors are taxed on their economic operations and/or gains under existing law. - Non-entrepreneur individuals are exempt from taxation of such gains under the tax code (Article 149 explicitly excludes income from alienation of securities from the tax base for Personal Income Tax). - Lack of financial regulations for the crypto asset sector in Armenia amplifies tax treatment uncertainty; the Central Bank of Armenia (CBA) is developing crypto asset regulations. - The SRC provided an internal draft on proposed crypto-asset amendments to the RoA tax code; the draft refers to definitions to be enacted in the forthcoming “RoA Law on Crypto-assets” being developed by the CBA. - Identified gaps: uncertainty in tax treatment and valuation; SRC draft lacks valuation rules for crypto-asset-only activities; crypto-asset-only activities other than mining appear not to be covered; lack of tools and know-how to analyze/trace crypto asset transactions. - CARF reporting is limited to reporting on transactions of non-residents in their country of residence where a tax treaty with exchange-of-information provisions is in place. - Many jurisdictions implemented reporting arrangements where all crypto asset transactions are reported on tax residents and non-residents. - SRC conducted a tentative gap analysis based on preliminary risk assessment results; finalization required by SRC. ### Selected timelines from Executive Summary recommendations - Finalize and document the Risk Assessment on Crypto Assets and seek its endorsement by the Compliance Risk Management Council. - Timeline: July 2024 - Review the draft law to ensure crypto-asset amendments to the tax code are comprehensive and include all crypto-asset-related activities that might create taxable income, particularly mining and staking. - Alternative: consider broader reform to introduce a capital gains tax that would tax gains on crypto assets. - Timeline: December 2024 - Ensure crypto-asset amendments to tax code include clear and objective valuation rules for crypto-asset income generated by crypto-asset activities without corresponding fiat currency transactions (e.g., mining, staking, crypto-asset to crypto-asset swaps, airdrops). - Timeline: December 2024 - Consider and decide whether to recommend to Government the extent of reporting (i.e., residents and non-residents) by Crypto Asset Service Providers, including Crypto Miners. - Timeline: December 2024 - Implement the Eight Step Roadmap at Annex 1. Note timelines in the roadmap. ### I. Background — commitments and coordination - RoA committed to implement the OECD Crypto-Asset Reporting Framework (CARF), requiring the first automatic exchange of information by 2027. - RoA previously committed to implement the OECD Standard for Automatic Exchange of Financial Account Information on Tax Matters (AEIO) and to initiate the first exchange by 2025. - Internal draft amendment to the RoA tax code has been finalized by the SRC and peer-reviewed by OECD experts; draft includes obligations for Reporting Crypto-Asset Service Providers to collect and report relevant data in line with CARF requirements. - Lack of crypto-asset-specific provisions in the domestic tax code creates enforcement impediments, including valuation uncertainty and inability to challenge veracity of some crypto-asset service providers’ income statements. - CBA produced a proposal for a comprehensive regulatory framework envisaging licensing, prudential, and conduct requirements similar to the EU Markets in Crypto-Assets Regulation. - CBA’s draft regulations require licensed crypto-asset service providers to apply RoA AML/CFT framework. - Formal legislative process for sector-wide crypto-asset regulatory framework expected to commence in late 2024. - CBA intends to publish list of all licensed crypto-asset providers on its website. - SRC objectives: close identified gaps, ensure compliant automatic exchange of information under CARF by 2027, contribute to policy-making so tax code amendments address gaps, and engage IMF FAD and OECD experts for CD. ### Market observations and data gaps - Significant uncertainties as to size, structure, and risks of Armenian crypto-asset market due to lack of reliable data. - At least two large crypto-asset mining facilities exist, one marketing itself as state-of-the-art and a significant operation with a large server farm. - Presence of shopfront crypto-asset exchanges and Automatic Teller Machines (ATMs) where crypto assets can be exchanged for local currency. - Existence of an Armenian Blockchain Association and a “Blockchain Embassy” operated by a crypto-asset service provider registered in Lithuania. - Anecdotal evidence: market is nascent but growing; participants consistently stated current activity is limited. - Possible reasons for limited adoption: CBA’s risk warning of May 7, 2018 (a “soft ban” that does not apply to miners), and lack of practical everyday payment use cases. - Given small market size, now is an opportune time to strengthen tax laws before the market expands. ### Current tax treatment and enforcement impediments - Incorporated crypto-asset miners, exchanges, and retail investors are taxed on their economic operations and/or gains under the existing tax code. - SRC advised lack of clarity in law application leads to uncertainty and taxpayers exploiting the lack of clarity to minimize tax payable. - No valuation rules exist to determine the taxable amount for crypto-asset transactions. ### Valuation and taxation gaps - Armenian tax code does not include explicit valuation rules prescribing the applicable exchange rate to be used by tax residents and non-residents where the gain is sourced in the RoA when converting crypto asset income into Armenian dram for tax return statements. - High volatility of crypto asset prices and prevalence of price differentials across exchanges create the need for statutory valuation rules so the SRC can determine the appropriate tax base in local currency. - Valuation rules are particularly necessary for crypto asset activities where taxable income may be received without a corresponding fiat currency transaction: - mining - staking - crypto asset to crypto asset swaps - air dropping - Non-entrepreneur individuals are exempt from taxation of such gains under the tax code; absence of provisions in the tax code for taxation of capital gains by individuals. - VAT treatment is unresolved: purchases made with crypto should be subject to the same sales or value-added taxes, or VAT, as cash transactions; the tax code would need amendment to reflect treatment of Crypto assets in the context of supply of services liable for VAT. ### CARF obligations and implementation needs - Key actions required by the RoA: - enact domestic legislation requiring Crypto Asset Service Providers to report information and to implement relevant due diligence procedures pursuant to CARF; - have in place (technical) infrastructure that allows for effective (bilateral) exchange relationships with the Competent Authorities of other signatory countries; - implement appropriate safeguards to ensure confidentiality. - Consider streamlining CARF processes with those in place for the Common Reporting Standard (CRS). - It is not yet clear which Authority will be designated as the Competent Authority under CARF; expected the SRC will be ultimate “users” of CARF information received by the RoA. - Implementation gaps beyond legislation: staff training, education and training for prospective reporting entities, communication strategy, and data confidentiality safeguards. ### Risk assessment, gap analysis, and legal draft review - Mission provided a template and methodology for a structured risk assessment and conducted a workshop guiding cross-departmental discussion on risk identification, controls, and mitigation. - Preliminary gap analysis objectives: - identify domestic gaps (current tax framework gaps and lack of reliable data impeding domestic tax enforcement; risk of taxpayers using crypto to hide taxable income); - identify gaps in SRC readiness to comply with CARF (including gaps in legislative framework and need for processes to handle incoming treaty-partner information/data about RoA tax residents). - Recommendation: - Finalize and document the Risk Assessment on Crypto Assets and seek its endorsement by the Compliance Risk Management Council. - SRC internal draft reviewed by mission: - draft includes provisions on scope of tax obligations, applicable tax rates, and reporting requirements; - definitions in draft refer to forthcoming “RoA Law on Crypto-assets” expected to take into account CBA input; - shortcomings: no valuation rules for crypto-asset-only income streams; crypto-asset-only activities other than mining not covered. - Alternatives/additional measures: - RoA could request assistance from the IMF Legal area for review. - RoA could consider broader reform to introduce a capital gains tax that would tax gains on crypto assets and explicitly include crypto assets as underlying securities liable for Personal Income Tax (PIT). - This broader reform is supported by the IMF Middle East and Central Asia Department. - The Ministry of Finance has requested capacity development support on the introduction of such provisions. ### Potential market participants to consider in law design - Crypto Asset Services Providers, including: - Crypto Asset Exchanges - Crypto Asset Broker-Dealers - Crypto Asset Custodians/Wallet Service Providers - Crypto Asset Investment Entities/Asset Managers/Hedge Funds - Crypto Asset Lenders - Miners - Staking Services Providers - Stablecoin Issuers - Non-fungible Tokens (NFT) Issuers and NFT Market Places - Decentralized Finance Applications - Retail and Corporate Investors ### Extent of reporting and third-party data - Government decision required on extent of reporting by Crypto Asset Service Providers; CARF reporting is limited to reporting on transactions of non-residents to their country of residence where a tax treaty with exchange of information provisions exists. - Third-party data is important for modern tax administrations to ensure complete and accurate information in assessments. - Many jurisdictions implement reporting arrangements where all crypto asset transactions are reported for residents and non-residents; making transactions a tax event and full reporting would help maintain or improve compliance. - Mission supports expanded reporting by Crypto Asset Service Providers to the SRC to support tax compliance and minimize tax gaps. - Recommendation: - Consider and decide on whether to recommend to Government the extent of reporting (i.e., residents and non-residents) by Crypto Asset Service Providers, including Crypto Miners, in the RoA. ### Tax evasion risks, investigative needs, and capacity options - Current need to address cases of tax evasion where crypto assets are used to disguise or hide taxable activities. - Lack of visibility because of anonymity and unregulated market adds to concerns regarding taxpayers hiding gains from tax evasion. - Crypto is not totally anonymous; identification of transactors is highly technical and requires special skills; law enforcement agencies in Armenia may have access to such skills. - SRC may require access to Blockchain Analytics and information requested under Exchange of Information (EOI) powers in double tax treaties to identify participants. - Capacity gap options for SRC (dependent on internal cost-benefit analysis): - develop in-house blockchain analytics tools tailored to SRC needs; - acquire/license analytical tools from a reputable private sector blockchain analytics service provider after stringent due diligence; - cooperate, as appropriate, with other domestic authorities; - provide relevant staff with training offered by international organizations (e.g. Council of Europe cybercrime and crypto training). ### Tax treaty network and cross-border information - Armenia has an extensive tax treaty network with forty-six tax treaties in place. - SRC can request information from treaty partners where their tax residents may have acquired and disposed of a crypto asset in another jurisdiction. - SRC may receive information via CARF from other jurisdictions or from current compliance activities. - Residents of Armenia are allowed to credit foreign taxes paid on income received abroad against their Armenian tax liabilities. - Amount of foreign tax credit is limited to the amount of Armenian tax that would arise from the equivalent income in Armenia. ### CARF IT guidance and confidentiality - Actual exchange of data needs effective confidentiality safeguards. - OECD has guidance on CARF and IT related data exchange issues. - OECD published the CRS Status Message XML Schema and User Guide; the XML schema to support CARF exchange will be published separately. ### Materials left with authorities and recommendation - Materials left with authorities: - PowerPoint Slide Deck – “Regulating Crypto Assets” - PowerPoint Slide Deck – “The Failure of FTX (case study)” - PowerPoint Slide Deck – “The OECD Crypto-Asset Reporting Framework (CARF)” - Recommendation: - Implement the Eight Step Roadmap at Annex 1. ### Appendix I. Step by Step Roadmap — Steps, responsibilities, and completion dates - Step 1 Governance Arrangements - Description: Formalize the current working arrangements by setting up a cross department working group (CDWG) for implementation. The CDWG should develop a Project Plan and assess the recourse required to implement the Project Plan. - Responsible: Deputy Chairman - Completion Date: July 2024 - Step 2 Legislative Framework - Description: Legislative process at the official’s level has commenced with draft legislation (already reviewed by OECD experts). 1. Legislation for effective crypto taxation needs to be in place. Amendments to the tax code could be preceded by financial regulation on crypto based on CBA suggestions. The legislation should define the operators in the crypto industry that may support taxation legislation. The crypto taxation legislation, at a minimum, needs to define the tax base address valuation issues and the tax rate. 2. Legislation is also required to give effect to CARF in the domestic laws of the RoA. This will include reporting by crypto exchanges to align with CARF requirements and the CARF due diligence procedures to be followed by crypto exchanges. - Decision point: Scope of Reporting i.e. Will the legislation require reporting of all crypto transactions on residents and non-residents or just those related to CARF (i.e., non-residents only). - Responsible: CDWG Cross-department; Methodology Department in close cooperation with all relevant SRC departments (e.g., IT, Audit, etc.) - Completion Date: December 2024 - Step 3 Risk Assessment - Description: Complete the Risk Assessment based on the SRC Risk Assessment Template and present to the Compliance Risk Management Committee for endorsement. The Risk Assessment should focus on Residents (broader) and Non-residents (CARF, narrower). - Responsible: Risk Management Department - Completion Date: July 2024 - Step 4 Communication Strategy - Description: Develop a documented Communication Strategy. A communication process for tax code and CARF legislative changes needs to be in place. Engage with market players (miners, exchanges, and the crypto holders) as soon as possible. Reporters currently have no knowledge/awareness. Crypto reporters may need more/closer efforts, e.g., IT infrastructure needed by crypto exchanges for collection and submission of CARF reporting data. All drafts posted on SRC website (“E-Drafts”). - Responsible: CDWG Methodology Department (as drafting unit), Communications area. - Completion Date: December 2024 – Dependent on enactment of legislation and finalization of intergovernmental consultation. - Step 5 SRC Internal Preparation - Description: IT updates for electronic reporting. Exchange of Information process processes should already be in place but will need refining for CARF (see also OECD Manuals). - Responsible: CDWG and IT Department. - Completion Date: March 2025 - Step 6 Internal Training and Awareness - Description: Different modules for training i.e., Awareness and Operational levels. General Awareness for all staff. Operational training: more detail for staff directly involved in CARF processes. - Responsible: Training Department; OECD CARF Unit - Completion Date: March 2025 - Step 7 Automatic Exchange of Information - Description: Needs to be set up; most probably launched in September 2027 based on 2026 data. - Responsible: EOI Unit in International Cooperation Area. - Completion Date: September 2027 - Step 8 Tax compliance – new tax system. - Description: Develop Compliance Improvement Plan with a tax compliance program to manage the new tax system for crypto assets. - Responsible: CDWG Methodology Department - Completion Date: Prior to the effective date of applicability of the law *IMF Technical Assistance Report | PREFACE — tarea2024069-print-pdf* ### PREFACE _________________________________________________________________________________________ 5 ### PREFACE ### Mission context and participants - A capacity development (CD) mission team visited Yerevan, Armenia during the period April 15–23, 2024. - Mission team comprised Graham Whyte (Fiscal Affairs Department) and Philipp Hochreiter (Short Term Expert, specializing in Digital Assets). - Mission financed by the European Commission (EC) under the European Neighborhood Policy and Enlargement Negotiations Program (DGNEAR). - Mission requested by the Chairman of the State Revenue Committee of Armenia (SRC) at the 2023 Spring Meetings. - Workshops and meetings included SRC staff, the Central Bank of Armenia (CBA), and the CBA Financial Monitoring Centre (FMC). ### Purpose and output - Purpose: provide CD on tax compliance issues relating to Crypto assets. - Report represents final version of the aide-mémoire submitted to Mr. Ashot H. Muradyan, Deputy Chairman, SRC on April 22, 2024, and incorporates IMF reviewers’ comments. - Report structure: Executive Summary; (I) Background; (II) Key Issues; (III) Next Steps. - The SRC provided information and documents that form the basis of the report’s findings. ### Acknowledgements - Acknowledged support from SRC staff, specifically Dr. Narine Fahradyan and Dr. Andranik Hakobyan. - Mission team expresses appreciation for cooperation and participation of SRC staff. ### Key administrative facts - Report prepared following workshops and peer engagements with OECD experts. - The mission provided a template to facilitate creation of a structured Risk Assessment on Tax Compliance and Crypto Assets. --- ### EXECUTIVE SUMMARY ### Armenia’s international commitments and legislative need - In November 2023, the Republic of Armenia (RoA) committed to adoption of the OECD Crypto-Asset Reporting Framework (CARF) and initiation of the first CARF automatic exchange of information by 2027. - To give effect to this commitment, the RoA will need to enact domestic legislation. ### Current domestic tax and regulatory landscape - Currently, no crypto asset specific provisions, including an explicit definition, exist in the RoA’s domestic tax code. - Incorporated Crypto asset miners, exchanges, and retail investors are taxed on their economic operations and/or gains under existing law. - Non-entrepreneur individuals are exempt from taxation of such gains under the tax code (Article 149 explicitly excludes income from alienation of securities from the tax base for Personal Income Tax). - Lack of financial regulations for the crypto asset sector in Armenia amplifies tax treatment uncertainty. - The Central Bank of Armenia (CBA) is developing crypto asset regulations. - The SRC provided an internal draft on proposed crypto-asset amendments to the RoA tax code; the draft refers to definitions to be enacted in the forthcoming “RoA Law on Crypto-assets” being developed by the CBA. ### Identified gaps and risks - Uncertainty in appropriate tax treatment and valuation of crypto asset transactions leads to inappropriate tax outcomes. - The SRC draft does not yet contain valuation rules for income streams generated by crypto-asset-only activities. - Crypto-asset-only activities other than mining appear not to be covered by the current SRC draft. - Lack of tools and know-how to analyze/trace crypto asset transactions identified as a key impediment to effective tax enforcement. ### Reporting and exchange considerations - CARF reporting is limited to reporting on transactions of non-residents in their country of residence where a tax treaty with exchange-of-information provisions is in place. - Government needs to consider extent of reporting by Crypto Asset Service Providers, including Crypto Miners. - Many jurisdictions implemented reporting arrangements where all crypto asset transactions are reported on tax residents and non-residents. ### Capacity building and implementation - Mission workshopped a step-by-step 8-step roadmap for implementation of new laws once passed; roadmap sets activities, responsibilities, and timelines. - The SRC conducted a tentative gap analysis based on preliminary risk assessment results; finalization required by SRC. --- ### RECOMMENDATIONS (selected items from report) - Finalize and document the Risk Assessment on Crypto Assets and seek its endorsement by the Compliance Risk Management Council. - Timeline: July 2024 - Review the draft law to ensure crypto-asset amendments to the tax code are comprehensive and include all crypto-asset-related activities that might create taxable income, particularly mining and staking. - Alternative: consider broader reform to introduce a capital gains tax that would tax gains on crypto assets. - Timeline: December 2024 - Ensure crypto-asset amendments to tax code include clear and objective valuation rules for crypto-asset income generated by crypto-asset activities without corresponding fiat currency transactions (e.g., mining, staking, crypto-asset to crypto-asset swaps, airdrops). - Timeline: December 2024 - Consider and decide whether to recommend to Government the extent of reporting (i.e., residents and non-residents) by Crypto Asset Service Providers, including Crypto Miners, in the RoA. - Timeline: December 2024 - Implement the Eight Step Roadmap at Annex 1. Note timelines in the roadmap. --- ### I. BACKGROUND ### International commitments and domestic legislation - The RoA committed to implementation of the OECD Crypto-Asset Reporting Framework (CARF), requiring the first automatic exchange of information by 2027. - The RoA previously committed to implement the OECD Standard for Automatic Exchange of Financial Account Information on Tax Matters (AEIO) and to initiate the first exchange by 2025. - To fulfill CARF obligations, the RoA needs domestic legislation; an internal draft amendment to the RoA tax code has been finalized by the SRC and peer-reviewed by OECD experts. - Internal draft includes obligations for Reporting Crypto-Asset Service Providers to collect and report relevant data in line with CARF requirements. ### Current tax code status and enforcement impediments - No crypto-asset-specific provisions exist in the RoA domestic tax code. - Uncertainty as to appropriate tax treatment (including valuation issues) of crypto-asset transactions impedes SRC’s ability to challenge veracity of some crypto-asset service providers’ income statements. - Article 149 of the tax code excludes income from alienation of securities from PIT base; effectively there is no capital gains tax for securities held by individuals under PIT in Armenia. ### International context and IMF prior work - IMF published "Taxing Cryptocurrencies" report noting challenges: crypto’s quasi-anonymity is an inherent obstacle to third-party reporting and tax revenue at stake worldwide may be in the tens of billions of dollars. ### Regulatory developments - Lack of financial regulations hinders identification of market participants and volume/value of crypto-asset transactions. - Forthcoming financial regulations should include appropriate registration/licensing and reporting requirements for crypto-asset service providers. - SRC and CBA are coordinating: CBA produced a proposal for a comprehensive regulatory framework envisaging licensing, prudential, and conduct requirements similar to the EU Markets in Crypto-Assets Regulation. - CBA’s draft regulations require licensed crypto-asset service providers to apply RoA AML/CFT framework. - Formal legislative process for sector-wide crypto-asset regulatory framework expected to commence in late 2024. - CBA intends to publish list of all licensed crypto-asset providers on its website. ### SRC objectives - SRC seeks to close identified gaps to enhance effectiveness of RoA tax framework. - SRC seeks to ensure compliant and seamless automatic exchange of information under CARF by 2027. - SRC aims to contribute to policy-making so crypto-asset-specific tax code amendments address identified gaps. - SRC has engaged IMF FAD for CD and is engaging with OECD experts. --- ### A. What does SRC want to achieve? - Overarching objective: close gaps to enhance effectiveness of RoA’s tax framework and meet CARF obligations. - Need for guidance by international good practices and capacity development to incorporate these into RoA legal tax framework and SRC implementation. --- ### B. The Crypto Asset Market in Armenia Key observations: - Significant uncertainties as to size, structure, and risks of Armenian crypto-asset market due to lack of reliable data. - At least two large crypto-asset mining facilities exist, one marketing itself as state-of-the-art and a significant operation with a large server farm. - Presence of shopfront crypto-asset exchanges and Automatic Teller Machines (ATMs) where crypto assets can be exchanged for local currency. - Existence of an Armenian Blockchain Association and a “Blockchain Embassy” operated by a crypto-asset service provider registered in Lithuania. - Anecdotal evidence: market is nascent but growing; participants consistently stated current activity is limited. - Possible reasons for limited adoption: CBA’s risk warning of May 7, 2018 (a “soft ban” that does not apply to miners), and lack of practical everyday payment use cases. - Given small market size, now is an opportune time to strengthen tax laws before the market expands. Data visualizations referenced (figures provided in source): - Figure 1. Crypto asset revenue in selected countries (Source: Statista). - Figure 2. Total Darknet Market Cryptocurrency Sent/Received (per capita; in EUR) — suggests darknet use of crypto assets is comparatively low in Armenia (Source: Grauer K, Jardine E.; Cryptocurrencies and drugs: Analysis of cryptocurrency use on darknet markets in the European Union (EU) and neighboring countries; European Monitoring Centre for Drugs and Drug Addiction; 2022). --- ### C. The current tax treatment of Crypto Asset Transactions - Incorporated crypto-asset miners, exchanges, and retail investors are taxed on their economic operations and/or gains under the existing tax code. - SRC advised that there is a lack of clarity in law application, leading to uncertainty and taxpayers exploiting the lack of clarity to minimize tax payable. - No valuation rules exist to determine the taxable amount for crypto-asset transactions. --- *IMF Technical Assistance Report | PREFACE — tarea2024069-print-pdf* ### 15. The lack of statutory valuation rules for crypto assets prevents the SRC from objectively ### tarea2024069-print-pdf - 15. The lack of statutory valuation rules for crypto assets prevents the SRC from objectively ### Valuation and taxation gaps for crypto assets - The Armenian tax code does not include explicit valuation rules prescribing the applicable exchange rate to be used by tax residents and non-residents where the gain is sourced in the RoA when converting crypto asset income into Armenian dram for the purpose of their tax return statements. - High volatility of most crypto asset prices and prevalence of price differentials across exchanges create the need for statutory valuation rules so the SRC can determine the appropriate tax base in local currency. - Valuation rules are particularly necessary for crypto asset activities where taxable income may be received without a corresponding fiat currency transaction: - mining - staking - crypto asset to crypto asset swaps - air dropping - Non-entrepreneur individuals are exempt from taxation of such gains under the tax code; there is an absence of provisions in the tax code for the taxation of capital gains by individuals. - VAT treatment is unresolved: purchases made with crypto should be subject to the same sales or value-added taxes, or VAT, as cash transactions; the tax code would need amendment to reflect treatment of Crypto assets in the context of supply of services liable for VAT. ### OECD Crypto-Asset Reporting Framework (CARF) obligations and implementation - As a signatory to CARF, the RoA has committed to implement all steps necessary to facilitate automatic exchange of information in relation to certain crypto asset activities. - Key actions required by the RoA: - enact domestic legislation requiring Crypto Asset Service Providers to report information and to implement relevant due diligence procedures pursuant to CARF; - have in place (technical) infrastructure that allows for effective (bilateral) exchange relationships with the Competent Authorities of other signatory countries; - implement appropriate safeguards to ensure confidentiality. - Consider streamlining CARF processes with those in place for the Common Reporting Standard (CRS) due to potential touchpoints and synergies. - It is not yet clear which Authority will be designated as the Competent Authority under CARF; it is expected the SRC will be the ultimate “users” of CARF information received by the RoA. - SRC workshop participants identified implementation gaps beyond legislation: staff training, education and training for prospective reporting entities, communication strategy, and data confidentiality safeguards. ### Crypto asset risk assessment and gap analysis - The mission team provided a template and methodology for a structured risk assessment; an interactive workshop guided cross-departmental discussion on risk identification, risk controls, and risk mitigation. - Workshop feedback: guided risk assessment exercise improved understanding of current risk landscape and potential future challenges. - A deep technical understanding of economic substance and transaction flow is required to effectively design and implement future laws. - Preliminary gap analysis objectives: - identify domestic gaps (current tax framework gaps and lack of reliable data impeding domestic tax enforcement; risk of taxpayers using crypto to hide taxable income); - identify gaps in SRC readiness to comply with CARF (including gaps in legislative framework and need for processes to handle incoming treaty-partner information/data about RoA tax residents). - Recommendation: - Finalize and document the Risk Assessment on Crypto Assets and seek its endorsement by the Compliance Risk Management Council. ### Proposed legal framework and draft SRC amendments - The mission team reviewed an internal SRC draft on proposed crypto asset amendments to the RoA tax code, which includes provisions on scope of tax obligations, applicable tax rates, and reporting requirements. - Definitions in the draft refer to the forthcoming “RoA Law on Crypto-assets”, expected to take into account input from the CBA. - The SRC draft has been submitted to the OECD for peer review and a compliance assessment related to CARF obligations. - Close coordination among relevant Authorities is important due to interdependence between proposed tax amendments and the RoA Law on Crypto-assets. - The RoA Law on Crypto-assets is expected to align closely with the EU’s Markets in Crypto Assets Regulation; technical assistance by the European Commission may be considered. - Identified shortcomings of the internal SRC draft: - does not yet contain valuation rules for income streams generated by crypto asset only activities; - crypto asset only activities other than mining appear not to be covered. - Alternatives and additional measures: - RoA could request assistance from the IMF Legal area for review. - RoA could consider a broader reform to introduce a capital gains tax that would also tax gains on crypto assets, explicitly including crypto assets as underlying securities liable for Personal Income Tax (PIT). - Note: This broader reform is supported by the IMF Middle East and Central Asia Department. - The Ministry of Finance has requested capacity development support on the introduction of such provisions. - Recommendation bullets: - Review the draft law to ensure crypto asset amendments to the tax code are comprehensive and include all crypto-asset-related activities that might create taxable income, particularly mining and staking. - Alternatively consider a broader reform to introduce a capital gains tax that would also tax gains on crypto assets. - Review the draft law to ensure it includes clear and objective valuation rules for crypto asset income generated by crypto asset activities without corresponding fiat currency transactions (e.g., mining, staking, crypto asset to crypto asset swaps, airdrops). ### Potential crypto asset market participants to consider in law design - Crypto Asset Services Providers, including: - Crypto Asset Exchanges - Crypto Asset Broker-Dealers - Crypto Asset Custodians/Wallet Service Providers - Crypto Asset Investment Entities/Asset Managers/Hedge Funds - Crypto Asset Lenders - Miners - Staking Services Providers - Stablecoin Issuers - Non-fungible Tokens (NFT) Issuers and NFT Market Places - Decentralized Finance Applications - Retail and Corporate Investors ### Extent of reporting by crypto exchanges and third-party data use - Government decision required on extent of reporting by Crypto Asset Service Providers; CARF reporting is limited to reporting on transactions of non-residents to their country of residence where a tax treaty with exchange of information provisions exists. - Third-party data, such as crypto asset transactions, plays an important role in supporting modern tax administrations’ processing of tax returns and ensuring complete and accurate information in assessments. - Many jurisdictions implement reporting arrangements where all crypto asset transactions are reported for residents and non-residents; making transactions a tax event and full reporting would help maintain or improve compliance. - International comparisons (summaries provided in the source) show jurisdictions reporting all transactions (examples from Australia, United States, Brazil). - The mission team supports expanded reporting by Crypto Asset Service Providers to the SRC to support tax compliance and minimize tax gaps. - Recommendation: - Consider and decide on whether to recommend to Government the extent of reporting (i.e., residents and non-residents) by Crypto Asset Service Providers, including Crypto Miners, in the RoA. *IMF Technical Assistance Report | extracted content as provided* ### 34. There is a current need to address cases of tax evasion where crypto assets are used to ### tarea2024069-print-pdf - 34. There is a current need to address cases of tax evasion where crypto assets are used to ### Tax evasion risks and investigative needs - There is a current need to address cases of tax evasion where crypto assets are used to disguise or hide taxable activities. - Lack of visibility because of the anonymous nature of crypto assets and the current unregulated market adds to concerns regarding taxpayers hiding gains from tax evasion. - Crypto is not totally anonymous; identification of transactors is highly technical and requires special skills. - Law enforcement agencies in Armenia may have access to such skills. - To address tax compliance issues the SRC may require access to new techniques such as Blockchain Analytics and information requested under the Exchange of Information (EOI) powers in double tax treaties to identify the participants. ### Identified capacity gaps and options for the SRC - Workshop participants identified the lack of tools and know-how to analyze/trace crypto asset transactions as a key impediment for effective crypto asset related tax enforcement in Armenia. - Depending on an internal cost-benefit analysis, the SRC may consider one or more of the following options: - develop in-house blockchain analytics tools tailored to the specific needs of the SRC; - acquire/license analytical tools from a reputable private sector blockchain analytics service provider after having conducted stringent due diligence on the capabilities and legitimacy of such provider; - cooperate, as appropriate, with other domestic authorities; - provide relevant staff with training offered by international organizations (e.g. Council of Europe cybercrime and crypto training). ### Tax treaty network, cross-border information, and tax treatment - Armenia has an extensive tax treaty network with forty-six tax treaties in place. - In appropriate cases, the SRC will be able to request information from treaty partners where their tax residents may have acquired and disposed of a crypto asset in another jurisdiction. - The SRC may get this information in the future from an exchange under the CARF from another jurisdiction or from its current compliance activities. - The tax outcome will depend on the taxation system in the other jurisdiction. - Residents of Armenia are allowed to credit foreign taxes paid on income received abroad against their Armenian tax liabilities. - The amount of foreign tax credit is limited to the amount of Armenian tax that would arise from the equivalent income in Armenia. ### CARF, OECD IT guidance, and confidentiality - The actual exchange of data to the SRC and externally with treaty partners needs to have in place effective confidentiality safeguards to maintain the community's confidence in the system. - The OECD has guidance on the CARF and IT related data exchange issues. - The OECD has published its standardized IT-format for providing structured feedback on exchanged Common Reporting Standard information – the CRS Status Message XML Schema – as well as the related User Guide. - The CRS XML Schema is the IT-based and standardized format for the reporting of information under the CRS. The User Guide explains the information required to be included in each CRS data element to be reported in the CRS XML Schema. - The XML schema to support the exchange of information pursuant to the CARF will be published separately. ### Materials left with authorities and recommendation - The mission team left the following materials with the authorities: - PowerPoint Slide Deck – “Regulating Crypto Assets” - PowerPoint Slide Deck – “The Failure of FTX (case study)” - PowerPoint Slide Deck – “The OECD Crypto-Asset Reporting Framework (CARF)” - Recommendation: - Implement the Eight Step Roadmap at Annex 1. ### Appendix I. Step by Step Roadmap — Steps, responsibilities, and completion dates - Step 1 Governance Arrangements - Description: Formalize the current working arrangements by setting up a cross department working group (CDWG) for implementation. The CDWG should develop a Project Plan and assess the recourse required to implement the Project Plan. - Responsible: Deputy Chairman - Completion Date: July 2024 - Step 2 Legislative Framework - Description: Legislative process at the official’s level has commenced with draft legislation (already reviewed by OECD experts). 1. Legislation for effective crypto taxation needs to be in place. Amendments to the tax code could be preceded by financial regulation on crypto based on CBA suggestions. The legislation should define the operators in the crypto industry that may support taxation legislation. The crypto taxation legislation, at a minimum, needs to define the tax base address valuation issues and the tax rate. 2. Legislation is also required to give effect to CARF in the domestic laws of the RoA. This will include reporting by crypto exchanges to align with CARF requirements and the CARF due diligence procedures to be followed by crypto exchanges. - Decision point: Scope of Reporting i.e. Will the legislation require reporting of all crypto transactions on residents and non-residents or just those related to CARF (i.e., non-residents only). - Responsible: CDWG Cross-department; Methodology Department in close cooperation with all relevant SRC departments (e.g., IT, Audit, etc.) - Completion Date: December 2024 - Step 3 Risk Assessment - Description: Complete the Risk Assessment based on the SRC Risk Assessment Template and present to the Compliance Risk Management Committee for endorsement. The Risk Assessment should focus on Residents (broader) and Non-residents (CARF, narrower). - Responsible: Risk Management Department - Completion Date: July 2024 - Step 4 Communication Strategy - Description: Develop a documented Communication Strategy. A communication process for tax code and CARF legislative changes needs to be in place. Engage with market players (miners, exchanges, and the crypto holders) as soon as possible. Reporters currently have no knowledge/awareness. Crypto reporters may need more/closer efforts, e.g., IT infrastructure needed by crypto exchanges for collection and submission of CARF reporting data. All drafts posted on SRC website (“E-Drafts”). - Responsible: CDWG Methodology Department (as drafting unit), Communications area. - Completion Date: December 2024 – Dependent on enactment of legislation and finalization of intergovernmental consultation. - Step 5 SRC Internal Preparation - Description: IT updates for electronic reporting. Exchange of Information process processes should already be in place but will need refining for CARF (see also OECD Manuals). - Responsible: CDWG and IT Department. - Completion Date: March 2025 - Step 6 Internal Training and Awareness - Description: Different modules for training i.e., Awareness and Operational levels. General Awareness for all staff. Operational training: more detail for staff directly involved in CARF processes. - Responsible: Training Department; OECD CARF Unit - Completion Date: March 2025 - Step 7 Automatic Exchange of Information - Description: Needs to be set up; most probably launched in September 2027 based on 2026 data. - Responsible: EOI Unit in International Cooperation Area. - Completion Date: September 2027 - Step 8 Tax compliance – new tax system. - Description: Develop Compliance Improvement Plan with a tax compliance program to manage the new tax system for crypto assets. - Responsible: CDWG Methodology Department - Completion Date: Prior to the effective date of applicability of the law *IMF Technical Assistance Report | pages 20–24* --- _Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024069-print-pdf.pdf_