Blockchain applications are emerging faster than you might expect. The potential business impact is enormous, including significant tax implications. The distributed ledger technology is “redefining what it means to transact, so dramatic changes across an enterprise should be expected,” according to a new Deloitte report.
With this report, Deloitte joins a chorus of commentators, including Nasdaq.com, who view 2017 as the breakout year for commercial blockchain implementations. When it comes to the initial wave of blockchain-driven innovations, all eyes are on the financial services industry. Banks and other financial institutions see opportunities to reduce their costs for cross-border remittances, securities trade settlement and regulatory compliance.
Deloitte’s study focuses on this sector too, but its tax discussion has much broader relevance. If your organization is not already planning a blockchain project, chances are it will be doing so in the not-too-distant future. Tax leaders absolutely should be involved in the early stages of this planning. The essential question for tax executives, one of the 20 that Deloitte lists in regard to blockchain systems, is this: “Are tax implications taken into account during design and ongoing management?”
The distributed nature of blockchain systems may give rise to strange new forms of nexus. Jurisdictions have traditionally used the geographical location of key decision makers as one principle to determine nexus. But what happens when valuable business decisions are made without humans? According to Deloitte, “companies could be subject to income tax, or attract transaction tax (e.g. VAT) in a country where they have no, or very few, employees.”
Taxation where an organization has no human presence – that’s just one indicator of the many ways that blockchain will make us rethink tax, and, quite possibly, the nature of business itself. Look for more on blockchain implications for tax in future posts. If you are looking for a blockchain primer, please see this recent Learning Lab post.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.