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 (e.g., VAT coin).
- 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).
Some issues to consider
- Could you add value to any planned blockchain projects your business is considering, for example by adding indirect tax reporting capabilities, efficiencies or 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?
Asking these types of questions can help you identify where indirect tax may play a part in your company’s blockchain plans.
This article was originally published in Tax Insights on 21 Sep 2017.
Summary
Blockchain technology could fundamentally transform how businesses and indirect tax administrations operate and interact.