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Blockchain Could Create Tax Certainty in Transactional Taxes
Blockchain Could Create Tax Certainty in Transactional Taxes
transactional taxes
In-house blockchain experts and consultants say companies and tax
authorities can use distributed ledger technology to report and administer
transactional taxes as real-time reporting increases.
By Danish Mehboob
August 05 2019
The overhead costs of using the technology are gradually falling, according to
Clifford. He explained that cloud computing advancements have made
technology solutions affordable and allowed companies to add technology-
specific roles in departments, including for tax reporting. Companies are
exploring the application of cloud-based blockchain solutions for supply chain
management.
The caveat to adopting blockchain for tax is that the effort will have to start
with governments setting up an infrastructure and viable reporting
environment. Asia-Pacific jurisdictions have already started. China, for
example, implemented a blockchain infrastructure for finance and tax
reporting purposes in 2018 to curb tax evasion in Shenzhen using Tencent’s
Intelligent Tax innovation lab. Additionally, Microsoft backed a report with
PwC in 2019 on how blockchain can improve tax compliance, which led
to ITR reporting about how it may be applied to speed up Mexico’s tax
returns.
Stoner explained that if real-time reporting becomes faster and data becomes
more consistent across jurisdictions then there is even greater possibility for
blockchain adoption. She added that blockchain should be developed
alongside initiatives such as MTD in order to stress test the technology in the
UK’s reporting environment and start forming standards.
A matter of time
Taxpayers and advisors said that ‘it’s a matter of when rather than if’ the
technology gets adopted. It is an effective tool for tax authorities to curb VAT
fraud now, but a long-term real-time reporting solution for businesses. Tax
directors are trying to be the first to find a business case in tax to present to
their board of directors about how to make use of blockchain in tax.
However, taxpayers fear interfacing directly with authorities may leave them
vulnerable to too much data mining and fishing trips.
Advisors explain that these risks, coupled with a lack of smart contracts that
embed computer logic to run operations on the distributed ledger for tax
purposes, will impede adoption unless tax departments realise the long-term
benefits of reporting their taxes using the technology.
The long-term tax applications of blockchain are clearer than taxpayers may
think, but the lack of crossover interaction between enthusiasts and tax
specialists is a barrier to adoption. Other barriers such as a lack of
standardised data also hinder wider blockchain applications that can help tax
directors realise the technology’s potential in an increasingly disclosure-driven
international tax environment.
https://www.internationaltaxreview.com/article/b1g4578dn3z04q/blockchain-could-create-tax-
certainty-in-transactional-taxes