Many TP executives said that implementing blockchain technology would allow their companies to save time on tax compliance, gain greater visibility into their supply chain models, and improve the reliability of their internal data.
Companies must, however, carefully consider the cost and effort of converting to real-time data via blockchain.
"Blockchain could definitely be of great help to secure inter-company transaction for both tax administrations and taxpayers’ purposes," said Marc Mokrab, Verisure's group tax director.
"It would authenticate the primary source of the data and could be used to reconcile and cross check information easily, especially in the TP environment where data comes from everywhere," Mokrab said.
The technology's main benefit is that it provides tax administrations with more original data, reducing information uncertainty. This would lead tax authorities to challenge fewer, if not none, corporate documents.
"Blockchain can provide comfort to tax authorities in that it can demonstrate a secure system of transactions," said Gary Ashford, a partner and chartered tax advisor at Harbottle & Lewis.
"This can improve the audit processes. It could reduce the compliance burden by demonstrating a secure audit process," Ashford added.
The time savings and data reliability provided by blockchain technology, according to Manuel de la Rosa, TP consultant at TPA Austria, will create a sense of transparency and trust between tax authorities and businesses, an issue highlighted in HMRC's diverted profits tax (DPT) revenue and investigations report released in May.
According to Ashford, the increased visibility and additional information about the transaction would also provide a good foundation for benchmarking exercises.
Following years of tax uncertainty and data unreliability caused by the COVID-19 pandemic, as well as the Russia-Ukraine war, the technology could be especially useful. Businesses would benefit from more accurate data as TP audits and documentation checks become more stringent.
Furthermore, the TP board of directors believes that blockchain technology could be useful for recording cross-border transactions.
"We’re starting to see companies use the blockchain to verify sources of supply – such as verifying the ethical approach to supply chains. Every transaction is recorded on the blockchain," said Deloitte Touche Tohmatsu partner Neil Pereira.
"I spoke to a client who told me their supply chain is using the blockchain technology to verify a lot of these things. It’s going to enhance TP and cross-border dealings because one of the historical challenges is getting the information in the first place," Pereira added.
Many in-house TP directors and consulting firms are looking into using blockchain technology to improve data accuracy and speed up the process. Smart contracts, which are programs stored on the blockchain, have piqued their interest.
"Every time a transaction happens, the contract is entered in for that transaction. A lot of benefits could be derived from a TP side, especially for clients," said Marcus Stelloh, head of TP at BDO South Africa.
"You could implement that in a way that whenever a transaction is happening, the agreement refers to the policy and makes sure that the pricing terms of the policy can be incorporated into the agreement. When the transaction happens, it is actually aligned with the policy," Stelloh explained.
"Let’s say you have 100 transactions per month, well you can easily pull that data and then through your ERP system, you can bring it into the dashboard. You don’t have to do quarterly or half yearly checks," Stelloh explained.
Companies are likely to adopt blockchain technology soon due to the time savings and real-time data capabilities. However, implementing the system could be a time-consuming process that adds layers to the technology stack for businesses that rely on existing IT architecture.
Roos Koning, a blockchain and crypto expert at Rabobank, warns that the initial setup may be "more complicated than people think" and may incur costs for businesses. Collaboration is essential.
"It’s an entire company that needs to agree. There also needs to be an incentive for the company to want to be transparent,," Koning added.
Meanwhile, companies looking to reduce the compliance burden caused by an abundance of reporting requirements may benefit from blockchain-based consistent real-time reporting.
Companies would be able to build better trust relationships with tax authorities thanks to real-time data and a quick recording process. Finance and tax departments that support blockchain record keeping may save their companies money in the long run by avoiding costly audits and penalties.
By fLEXI tEAM