Europe Plans to Launch Blockchain to Combat VAT Frauds

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To overcome the losses through VAT frauds, the European government has now decided to introduce the crypto-based blockchain technology to its taxation system.

This technology has shown its prominence in data protection and inducing efficacy to tax information for crypto exchanges present worldwide.

This step is required as the revenue sources in Europe are extremely vulnerable, giving opportunities for fraud and scandals in the market. Continuous repetition of such scandals made it necessary for the government to take some quick and strict actions. The vulnerability of VAT occurs due to its disjointed and self-reporting system of rules which has applied in member countries of the European Union.

Richard Ainsworth who is the tax program’s head at Boston University School of Law, said, that by creating a record of all the invoices digitally, the blockchain technology will allow verifying the tax payments to all the tax authorities throughout Europe.

The European parliament has cited the Ainsworth’s research on blockchain’s potential application in tax collection. As of blockchain is not applied to any of the European countries. The researcher’s fear that implementation of this technology would take a lot of time, but as of now the efforts of early stages has begun.

The Planned System

As per the tax experts, the European taxation system which is a complex system with variation in rates and rules would be efficiently improved with the use of blockchain technology.

A blockchain allows the payer to upload their digital invoices into the reporting system of a country. From here this invoice would be shared to a network of tax auditors and administrators throughout the Europe for verification. This creates a record of invoices that are easily accessible by the authorities for detecting any frauds or scams.

Blockchain would create real-time auditing possible for transactions. In 2018, the parliament of Europe has released a report, which says the “carousel fraud” has made a loss of 50 billion euros in a year. This type of fraud takes place when related firms take advantage of cross border rules on VAT and vanishes before the authorities come into action. To have a pause on such frauds and minimize the complexity of the structure, the parliament of Europe had adopted an overhaul in February.

European Investments

To decrease the complexity of the tax collection system, administer the personal data and health records, the European Commission has set an investment to be provided in blockchain up to 340 million $ by 2020. Soon an infrastructure would be placed to publicise these services.

To have access to tax information within authorities, the director-general of EC is looking to adopt the blockchain system. General said the European infrastructure of blockchain services would have the taxation system as its part.

At the OCED forum, from the Finnish authority of tax administration, the senior advisor named Timo Puiro said, to track the real estate transactions, the authority has already begun its working on blockchain in combination with national banks. He adds, that the country had conducted a pilot project to check the efficiency of the digital or blockchain-oriented VAT system.

The tax authorities of Sweden, are testing the blockchain for income tax & custom duties on non-residents by digitizing the receipts. The Estonian authorities have already regulated their banking, health and registration of business via blockchain.

To beat the VAT frauds, a startup from Netherland called “Summitto” is already working on the taxing accounting system based on blockchain. They have received the fundings under the EU’s Horizon 2020 project. 2017 based company had offered their program in front of 4 governments of Europe.

As a beginning step, other countries are also conducting developments of taxing auditing and accounting systems via blockchain technology. Even in Italy and Hungary, digital invoices have become compulsory for taxpayers.

According to Van der Enden, who is tax advisor to Netherland authorities, if considering the present view of the economies, the overall implementation of blockchain technology is not near. As a first step, the countries are required to accept the technology and then work to achieve it.