EC Tax Review
Volume 31, Issue 3 (2022) pp. 140 – 155

https://doi.org/10.54648/ecta2022014

Abstract

This article aims to demonstrate that blockchain technology is the most optimal solution to tackle the significant challenge that Value Added Tax (VAT) non-compliance poses to the European Union (EU). VAT non-compliance, particularly evasion and fraud, is a complex and costly challenge to EU tax authorities and nations as a whole. Current compliance mechanisms fail to sufficiently ensure the collection of VAT in an effective and truly secure manner, leaving VAT and associated data open to misreporting and exploitation, posing a risk to both individual and national security. 

Focusing on the design aspects of security, transparency, and efficiency, it will be argued that blockchain provides the opportunity to tackle non-compliance whilst achieving a balance in both taxpayer’s wants and tax authorities’ needs. Utilizing current examples of blockchain implementation, as well as a specific VAT Coin proposal, it is demonstrated that a blockchain solution can come in many forms; be it a public, private or consortium blockchain, with each type respectively achieving compliance whilst prioritizing different aspects of data security and privacy. Ultimately, it is indicated that a blockchain-based VAT system has the potential to enable a significant reduction in the risk of non-compliance, whilst streamlining taxpayer obligations and protecting valuable datasets.

Extract

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