The migration of traditional equities onto blockchain infrastructure is shifting from experimentation into institutional reality, and according to RegTech firm TAINA Technology, the industry is overlooking a critical consequence: tax compliance.
Regulatory momentum, including the SEC’s proposed Innovation Exemption and the UK’s wholesale market reforms, is preparing markets for round-the-clock trading and tokenised settlement. Yet, as TAINA highlights, while attention centres on capital efficiency, a structural challenge lurks beneath. Once blue-chip equities are issued and traded in tokenised form, identifying and tracking beneficial owners becomes far harder, complicating both capital gains reporting and the correct application of withholding tax on dividends.
Historically, traditional and digital asset compliance have run in separate silos. CRS was built for conventional financial accounts, custodians and brokerage relationships, while CARF was designed as a crypto-native framework to capture decentralised digital asset activity. Tokenised securities sit squarely between the two, blending traditional financial instruments with a digital asset wrapper and effectively dissolving the boundary between the frameworks.
TAINA argues that a fragmented compliance approach now drives duplication, higher operational cost and inconsistency risk, making a unified documentation model essential.
The United States adds further complexity. Rather than aligning with CARF, it has pursued a domestic route through Form 1099-DA, which obliges digital asset brokers to capture gross proceeds and cost basis for US taxpayers, but leaves non-US investors unaddressed. Whereas foreign investment in US equities is governed by established withholding and reporting under Form 1042-S, no clear mechanism exists for reporting or withholding when a foreign investor holds a tokenised US equity paying a dividend. This asymmetry has helped push the US towards CARF engagement, and with early adopting jurisdictions targeting information exchanges from 2027, the challenges are already surfacing in operational models.
TAINA points to two core operational hurdles: entity classification, where determining whether complex fund structures fall under CRS, CARF or US domestic rules demands nuanced logic, and the shift from account-based to transaction-based reporting, which forces systems to reconcile year-end balances with continuous transaction-level data.
This is where RegTech becomes critical infrastructure. TAINA’s platform automates classification for individuals and complex entities against CARF, CRS and US requirements in real time, validates self-certifications including W-8 and W-9 forms, and performs real-time TIN verification, bringing FATCA, CRS, Form 1099-DA and CARF into a single data architecture.
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