- Withholding tax (WHT) solution based on EY technology aims to address inefficiencies and complexities in the cross-border withholding tax process
- The WHT solution based on blockchain decentralizes, automates and allows more secure data sharing of investor tax and financial information
- Collaborative efforts between government and industry aim to address a decades old tax issue and would help make withholding tax processes more resilient, effective and efficient
LONDON, 28 JULY 2021. The EY Organization today announces the completion of a multi-stakeholder project that successfully tested how the TaxGrid™ blockchain solution could address certain inefficiencies and complexities in the cross-border withholding tax process in relation to dividend distributions and improve tax compliance to near-real-time benefiting investors, financial institutions and tax authorities alike.
The project is the culmination of a concerted effort to bring together an ecosystem of interested parties to utilize a blockchain-based technology solution. It involved participants from the government departments of the United Kingdom (HM Revenue & Customs - HMRC), The Netherlands (NTA – The Netherlands Tax Authorities) and Norway, companies including BNP Paribas Securities Services, Citibank, N.A.; JP Morgan Securities Services; Northern Trust; APG Asset Management N.V.; PGGM Investments and EY teams as well as two invited academic institutions: Vienna University of Economics and Business, Austria and the Tax Administration Research Centre - TARC, University of Exeter, United Kingdom.
In addition to addressing the decades-old “withholding tax challenge”, this solution would help tax authorities move toward near-real-time compliance. It would help financial intermediaries to coordinate the timely exchange of investor information, across an extensive and complicated network; and allow them to meet contractual obligations and, potentially, regulatory requirements, while protecting the confidentiality of investor information.
The WHT solution uses blockchain technology to automate, decentralize and share tax and financial information more securely between financial intermediaries and tax authorities by creating a “shared record book” of all dividend transactions, enabling appropriate and accurate taxation of dividend income at source. The WHT solution also simplifies the process for obtaining the correct tax treatment while increasing transparency and helping reduce governments’ exposure to fraud.
To safeguard data privacy and confidentiality, the WHT solution uses zero-knowledge proof (ZKP) and other privacy preserving technologies, which help protect investors’ sensitive information and commercial confidentiality, while providing tax authorities with near real-time access to the data.
Kate Barton, EY Global Vice Chair – Tax, says:
“This groundbreaking cross-border project illustrates that innovation and technological development - powered by collaboration - can facilitate tax policy that works for a wide range of stakeholders. The broad tax ecosystem can benefit from withholding tax processes that are more efficient and more secure. This will reduce costs, increase transparency and move tax compliance into near real-time. The intention is to continue these multi stakeholder discussions on ways to engage with other government and industry representatives. We want to address the legal and regulatory changes required to achieve a wider application of the WHT solution to help the global withholding tax challenge.”
Hank Prybylski, EY Global Vice Chair – Transformation, says:
“Blockchain technology as a remedy to the withholding tax challenge is no longer just a concept. This project shows that in the near future, industry and governments may be able to reconcile legal and technical issues, flex to address disparate demands of taxpayers and tax authorities and promote digital transformation.”
Jeffrey Owens, Director of the WU Global Tax Policy Center (Vienna University of Economics and Business, Austria), says:
“Our analysis of a blockchain solution to withholding taxes showed that, by drawing on countries’ best practices, solutions to some interesting legal issues can be found, that enable governments and industry to benefit from near real-time access to information and improve the functioning of international capital markets.”
Phil Caldwell, Global Head of Custody Tax Product (JP Morgan Securities Services), says:
“This successful and systematic test of moving data between custodians and tax authorities in a secure and controlled fashion shows that blockchain may have a real place in simplifying the investor experience in the cross-border withholding tax process. Using a digital solution as an innovative alternative to the traditionally paper-based process should bring significant efficiencies to our industry and we are hopeful that this innovation will be adopted.”
Nigel Nelkon, Global Head of Tax Business Services (BNP Paribas Securities Services), says:
“We are very proud of our contribution to this initiative, which demonstrated the potential benefits that can be unlocked when private and public sectors join forces to address common pain points.”
Ryan Marsh, Global Head of Distributed Ledger Technology and Digital Innovation, Securities Services (Citibank, N.A.), says:
“New technologies are transforming the way we do business and we are pleased to have supported this initiative and explored new opportunities to improve withholding tax processes. At Citi, we are focused on converting digitization trends and technology advances into innovations and capabilities to benefit our clients. Through this project, we have seen the potential for significant efficiency opportunities for both intermediaries and investors. We look forward to working collaboratively with interested participants to further develop this solution.”
Justin Chapman, Global Executive of Northern Trust’s Securities Services and Global Head of Market Advocacy & Innovation Research, says:
"Northern Trust is pleased to have participated in this innovative multi-stakeholder project. Initiatives such as this demonstrate the benefits that evolving technologies can bring to our clients and the wider financial ecosystem. We believe the use of blockchain technology is well placed to support greater efficiencies for investors and we look forward to ongoing engagement with other industry contributors and tax authorities to move this agenda forward.”
For more information on the WHT solution and this project, please visit TaxGrid™ | EY - Global. The final report of the project can be found here.
-ends-
Notes to editors
About EY
EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.
Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate.
Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com.
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.
