Abstract
Finding the right balance between effective cross-border exchange of tax information and limiting tax authorities access to sensitive data of foreign taxpayers is among the key issues for international tax policy. The legal protection of private and commercially sensitive information, as well as the need to demonstrate that data is foreseeably relevant before requesting it are amongst the main backstops to having a symmetrical data flow between purely domestic and cross-border tax information. Our paper suggests a technological solution that strikes a balance between privacy and cross-border transparency. All taxpayers involved in a cross-border transaction need to report the transactional data to their domestic tax authorities. The tax authorities transform the standardized transactional data with a hashing algorithm and upload the resulting hash to a shared, permissioned blockchain platform. If both parties to a transaction reported it to their domestic authorities, two identical hashes would appear on the blockchain, raising no concern. If one of the parties fails to report, only one hash would appear, demonstrating non-reporting on one side of the border. This would give sufficient grounds to consider that the sensitive information underpinning the transaction is foreseeably relevant for establishing tax liability leading to traditional exchange of information between the authorities. Based on this, a failure to report would be detected both for income and VAT purposes thereby substantially reducing the possibility for tax evasion.
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Notes
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Convention on Mutual Administrative Assistance in Tax Matters - OECD.
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In an optimal case, this is a standardized e-invoice.
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As mentioned before, these processes are automated to the point where “voting” means that software validates the proposed entries against a set of rules.
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However, this is not an exempted transaction and therefore Aco is entitled to receive a refund on its own input VAT.
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Lazarov, I., Botha, Q., Costa, N.O., Hackel, J. (2022). Reporting of Cross-Border Transactions for Tax Purposes via DLT. In: Kotsis, G., et al. Database and Expert Systems Applications - DEXA 2022 Workshops. DEXA 2022. Communications in Computer and Information Science, vol 1633. Springer, Cham. https://doi.org/10.1007/978-3-031-14343-4_26
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