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At a meeting of the Organisation for Economic Co-operation and Development (OECD) in Paris on Monday, crypto industry leaders rebuffed attempts to force them to reveal information of non-fungible tokens (NFTs), decentralized finance (DeFi) transactions, and retail payments to tax authorities.

International tax experts propose to expand existing bank sector restrictions to prevent international bitcoin (BTC) ownership from being hidden from revenue authorities. And they may wind up going beyond both the present banking standards and the money laundering norms currently being applied to crypto by the Financial Action Task Force, a parallel standard-setter (FATF).

Coinbase's Vice President of Taxation, Lawrence Zlatkin, told the OECD that the company's intentions, announced in March, were "overly broad" because they didn't merely look at financial assets used for payment or investment. The ideas, according to Zlatkin, would simply throw extra costs on a relatively new and nascent business.

Banks are obligated to identify any account holders who are tax residents overseas and transmit their details to the proper authorities under current requirements known as the Common Reporting Standard (CRS) – whose US equivalent is the Foreign Account Tax Compliance Act (FATCA).

However, the industry has maintained that these conditions are much more difficult to achieve for NFTs, whose price isn't known at any one time, unlike stocks or gold. They also point out that nondigital goods like paintings aren't covered by present rules.

Attempting to incorporate DeFi applications may also be premature, according to Zlatkin. "Perhaps we should wait till they match the conditions more readily," he said, citing DeFi systems that lack a central controller and may not even consider themselves to be clients. "We should concentrate on what we already know."

What information should be shared?

The worldwide FATF has introduced parallel money laundering regulations that compel crypto wallet holders to do identity verification only if a crypto asset is intended for payment or investment. However, tax officials are concerned that applying that test to the wide range of crypto assets available may be too complicated.

One option is to only accept crypto assets that are "actively traded on an established market," such as bitcoin and NFTs, according to Lisa Zarlenga, a partner at law firm Steptoe & Johnson, speaking on behalf of advocacy group the Chamber of Digital Commerce.

This might entail determining whether the prices being offered and accepted are easily available and advertised, as well as requiring disclosure for anything traded on a large exchange like Kraken or Coinbase (COIN), according to Zarlenga.

Going beyond what is done for traditional banking assets like interest and dividends could be a violation of the "technology neutrality" principle because digital assets are treated more harshly, according to Zarlenga. "Just because something is digital doesn't mean it has to be included.""

The OECD appears to believe that simply adopting existing anti-money laundering laws – which look at how a particular asset is used – will place wallet providers in an impossible position when considering whether or not to disclose a transaction.

According to Philip Kerfs of the OECD, "a lot of delegates considered it a very difficult criterion to apply in reality for binary reporting." A judgment call would be made to determine whether a certain Bored Ape NFT is preserved for investment or for aesthetic appeal.

The OECD reacts

Regulators are pondering how any reporting system may function — for example, how to determine the precise level of trade at which assets must be reported to authorities – but they may also decide that digital assets are riskier and hence deserve harsher treatment.

Zlatkin and Zarlenga's statements, according to Erika Nijenhuis, senior counsel at the US Department of Treasury, "indicate to me that the commentators don't believe that there are extra risks to tax compliance from the digital form of the type of assets that we are talking about." Why is it the correct response?"

Industry fears that regulation would stifle a fast-growing and relatively young sector were likewise dismissed by Nijenhuis. "I'm not sure that just because something is novel means it shouldn't be done," she added. "When they first started, CRS and FATCA were brand new."

"Is there a chance that these exchanges may carry a significant share of transactions... and we will have missed an opportunity to mandate reporting?" Nijenhuis wondered what would happen if the framework didn't address decentralized exchanges right now.

Her comments imply that industry appeals for less regulation may be ignored. However, certain sectors of the economy are urging the OECD to take a harsher stance in other areas, such as preventing crypto exchanges from relocating to less regulated nations.

'Nexus Rules'

Extending what are known as the "nexus rules" – meaning an exchange legally founded in a tax haven that serves European consumers would still have to follow European regulations – has been recommended by tax experts such as KPMG.

Treasury's Nijenhuis even suggested that blacklists of places with lax crypto legislation be created, similar to the EU's list of unfriendly tax and money-laundering regimes. Industry participants who don't want others to gain an unfair edge endorse this approach.

"We would support broader nexus rules," Zlatkin of Coinbase stated. "I don't think we'd argue for entities shifting to places where reporting isn't required and easy circumventing these requirements."

Zlatkin also agreed with the concept of a crypto blacklist. "We don't want entities to incorporate or otherwise exist and then turn their backs on the entire process," he said.

European legislators have also proposed that securities market regulators produce a list of high-risk crypto companies, thus prohibiting doing business with companies based in tax havens. However, the European Commission, which is mediating discussions to introduce money laundering regulations in the sector, has said that the idea could violate international trade laws.

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