Summary
1. Reporting Obligations Under Japan’s CARF Are Limited to Transaction Entities
Under Japan’s CARF framework, reporting obligations apply to entities engaged in crypto asset transactions, such as cryptocurrency exchange operators and financial instruments businesses. In contrast, entities that only provide custody or transfer services are excluded, making the scope of the regulation relatively limited.
2. Enforcement Mechanisms Include Investigative Authority and Penalties
To ensure effectiveness, tax authorities are granted the power to inspect records and request document submissions. Failure to submit reports or providing false information may result in penalties, including imprisonment or fines, reinforcing compliance within the system.
3. Limitations in Information Visibility and Broader Structural Challenges
At present, information on domestic residents is not automatically shared with tax authorities. Additionally, it remains difficult to obtain data from exchanges in non-CARF-participating jurisdictions. Combined with the opaque nature of off-chain transactions within exchanges, these issues highlight ongoing challenges in the system’s effectiveness and the need for further improvements.
Continuing from last time, after summarizing the outline of the Japanese version of CARF, we will examine its problems.
First, under the Japanese version of CARF, the following "reporting cryptocurrency exchange businesses, etc." are obligated to provide information to the head of the competent tax office:
- Cryptocurrency exchange businesses under Article 2, Paragraph 16 of the Payment Services Act
- Electronic payment methods business operators under Article 2, Paragraph 12 of the Payment Services Act
- Financial instruments business operators under Article 2, Paragraph 9 of the Financial Instruments and Exchange Act
As such, those defined under domestic law as entities expected to conduct cryptocurrency transactions with customers are listed.
However, only those who conduct any of categories 1-3 of cryptocurrency transactions as a business are considered reporting cryptocurrency exchange businesses, etc.
Under CARF, businesses that only "store" or "transfer" crypto assets are not required to report. Therefore, in the Japanese version of CARF, businesses that only "store" or "transfer" crypto assets are excluded from the scope of reporting crypto asset exchanges, etc.
