Adding indirect taxes to the mix could significantly boost the business benefits of blockchains.
“Blockchain technology could fundamentally transform how businesses and indirect tax administrations operate and interact.”
A blockchain may be defined as a distributed ledger of transactions. Like a traditional ledger, individual transactions (unique blocks) are added to the ledger (the chain) and never removed.
What does blockchain mean for indirect tax?
One does not need to understand how blockchains work to think about the indirect tax consequences or to get involved in discussions about their impact in a particular business. Rather, one can focus on the benefits of blockchain and the business issues that blockchain technology could address.
For example, if blockchain would allow your company to trust unrelated suppliers’ transaction data because they could not be altered, could that benefit also be used to improve the accuracy of your VAT reporting or your defense position during a VAT audit?
Some issues that can be considered are:
- Could you add value to any planned blockchain projects your business is considering, for example by adding indirect tax reporting capabilities, efficiencies, savings or by eliminating indirect tax risks?
- Could blockchains revolutionize reporting for VAT and customs duties?
- What could be the indirect tax risks of blockchain applications?
- Are there any indirect tax opportunities?
- What could be the implications for your indirect tax strategy or indirect tax risk profile of changing business models, adopting a decentralized structure, or if value is created in new ways?
- What would be the impact of having improved data quality and immediate real-time information, or of changing invoicing, settlement or reporting?
Examples of the indirect tax implications of using blockchain
- VAT — eliminating or reducing fraud by having full audit trails, automatic settlements, and identity management.
- VAT, customs or excise duties — reducing fraud and improving indirect tax collection by using cryptocurrencies.
- Global trade — reducing the time taken to move goods cross-border by using blockchains to authenticate traders and goods for customs purposes (e.g., for granting authorized economic operator status and using green lanes). Reducing transport time supports the efficiency of cross-border supply chains (e.g., for perishable goods) and just in time manufacturing.
- Excise taxes — using blockchains created for excisable products (mineral oil, tobacco products, wine, and beer) to calculate duties more accurately, reduce smuggling and counterfeiting and track cross-border movements
- E-invoicing — providing automatic settlement and payment and fully authenticated matching documents between suppliers and purchasers (e.g., allowing automatic matching of input and output indirect tax and avoiding the need for self-billing for consignment stocks)
- Customs duty — allowing increased used of customs regimes and free trade agreement duty reductions by allowing traders to prove the origin and provenance of goods (e.g., imported goods used in manufacturing prior to export).
Do you think blockchain technology can transform the world of indirect tax? Drop a comment and let us know.