Overseas exchange users nervous about CARF introduction, leading to a massive exodus of 160 trillion won.

As international cooperation to share cryptocurrency transaction information becomes a reality starting this year, the tax risks faced by domestic investors using overseas exchanges are rapidly increasing. There are also concerns that funds leaving overseas exchanges, which absorbed 160 trillion won in domestic investor funds this year alone, could migrate to decentralized markets on a large scale.

According to financial industry sources on the 1st, starting this year, 48 countries and jurisdictions, including the US, UK, and the European Union (EU), will begin collecting relevant information for the implementation of the Automated Clearing of Funds (CARF) for Cryptocurrency Assets. CARF is an international cooperative system that automatically exchanges virtual currency transaction information annually among OECD member countries to prevent offshore tax evasion and enhance tax transparency amid the rapid growth of the virtual currency market.



CARF was approved by the OECD's Fiscal Affairs Committee in 2022, and the G20 formally endorsed it in November of the same year. The OECD's proposed CARF information exchange date is 2027. Ahead of this, the Korean government plans to establish a domestic legal basis for exchanging virtual currency transaction information this year and begin full-scale data collection.

In line with this schedule, domestic exchanges are also proactively responding to CARF. In accordance with CARF compliance regulations, Upbit introduced a process for submitting identity verification documents to verify customers' overseas tax obligations, effective today. Upbit explained, "Based on the submitted identity verification documents, we will identify cases of overseas tax obligations and begin reporting transaction information for users subject to reporting starting in 2027."

Once the CARF system is fully implemented, the perceived burden on users of overseas exchanges is expected to increase significantly. Since deposits, withdrawals, trading, and cryptocurrency exchanges on overseas exchanges may be shared with tax authorities in each country, investors will need to constantly organize and manage their transaction records, which are scattered across multiple locations. This is because, during tax audits, even if intentional tax evasion or unintentional omissions are discovered, investors could face an unexpected tax burden, including unpaid tax penalties and surcharges. Large amounts of tax evasion or repeated omissions could even lead to criminal prosecution. Key risks include small transactions deemed trivial and unreported, as well as misreporting or failing to report cryptocurrencies acquired through airdrops or staking rewards.

“Reported transaction information can inevitably be used to challenge past reporting records where the figures are inconsistent,” said The Bitcoin and Crypto Accountant, a UK-based cryptocurrency tax expert. “Since voluntary reporting is still possible, it is advisable to take action now if there are any unresolved issues.”

These changes are expected to weaken the existing incentives to use overseas exchanges. As the CARF system is still in its early stages of implementation, uncertainty regarding the scope of taxation is greater than that of domestic exchanges due to each country's reporting standards and information sharing methods. Consequently, there are concerns that overseas exchanges, which have absorbed approximately 160 trillion won in domestic investor funds this year alone, could see a massive exodus of investors.

However, the prevailing view is that this money is unlikely to return directly to domestic exchanges. Investors seeking to avoid regulatory and tax burdens are likely to diversify their assets into decentralized sectors, which are often outside of regulatory boundaries. Decentralized exchanges (DEXs) are accessible to anyone without Know Your Customer (KYC) procedures and allow users to directly store assets through personal wallets. In particular, with the rapid growth of perpetual futures exchanges (Perp DEXs) emerging as a viable alternative, there are predictions that the existing centralized exchange-centric trading structure could be reorganized.

“CARF will be a ‘game changer’ for the cryptocurrency market,” said Lucy Frew, global regulatory and risk advisory partner at international law firm Workers. “It will fundamentally change the compliance environment for both cryptocurrency companies and users.”

Reporter Kim Jeong-woo