Tax in the Era of Blockchain

Can blockchain help to solve the tax regulation and compliance issues raised by new technologies … including blockchain? It can, and much more besides, according to a new report from Tax Notes International.

The authors are David Deputy, director of strategic development and emerging markets at Vertex; Griffin Andersen of ConsenSys, a blockchain venture production studio; and Blazej Kuzniacki, research fellow with Singapore Management University.

The anti-regulatory ethos of the early cryptocurrency movement is still a factor in some corners of the emerging blockchain economy. But for tax authorities, that challenge has been eclipsed by practical questions around how to structure and enforce taxation in a world of direct-value transfers. Traditionally, tax systems focus on an easily identifiable entity – the corporation. However, in blockchain-based business models, “there isn’t a central entity,” the report points out. “Instead, network participants leverage self-executing software running on servers around the world.”

David and his co-authors suggest an innovative solution: designing compliance into the structure of blockchain systems themselves. After all, transparency and adherence to rules are the hallmarks of blockchain solutions. Those capabilities may be just what the tax world needs to rethink taxation, “potentially moving from a regime of periodic payments and reporting, in which audits are the enforcement mechanism, to a real-time flow of payments and information in which the automated monitoring of proper system use becomes the primary enforcement mechanism.”

The report offers plenty more food for thought on the blockchain-driven “Internet of Value,” including the role of artificial intelligence in tax compliance, the issues around international trade, and the opportunities for small and midsize businesses. It’s a must-read for tax leaders monitoring the changing tax landscape in the dawn of the blockchain era.