Eliza Mik (Chinese University of Hong Kong; Google Scholar) & Noam Noked (Chinese University of Hong Kong; Google Scholar), Blockchain and Tax Administration: A Critical Assessment, 50 Australian L. Rev. 180 (2021):
Recent publications argue that blockchains could substantially improve tax administration. This article critically evaluates these claims and examines several proposed use cases. It argues that many of the problems that blockchains purportedly solve exist off-chain, in the real world, and cannot be addressed by a blockchain. Blockchains can facilitate the storage and sharing of tax information. They cannot, however, streamline reporting requirements or enhance cooperation between tax authorities. This article also claims that the main benefit from several use cases derives from digitalization in general, not from the deployment of any specific type of database. It remains to be determined whether blockchains are in fact superior to other digitalized systems that perform comparable functions in tax administration.
This article makes several critical observations concerning the emerging literature on blockchain and tax administration.
First, it shows that many of the problems that blockchains could purportedly solve exist off-chain, in the real world, and cannot be solved by this technology. Blockchains can facilitate the storage and sharing of tax information. They cannot, however, streamline reporting requirements, enhance cooperation between tax authorities, or resolve other off-chain problems. Blockchains cannot remedy any problems in tax administration that derive from reporting false “offchain” information such as incorrect tax returns. When analyzing blockchain use cases for tax administration, we must first define the problems and consider whether they could be solved or at least alleviated by a given technology (including blockchains).
Second, the main benefits for tax administration from some of the proposed blockchain use cases, such as VAT, would derive from the digitalization of the taxrelated processes, not from the deployment of any particular type of distributed database.
Third, in the context of tax administration we cannot proclaim that blockchains are generally “better” than other databases. It remains to be determined whether blockchains are in fact superior to other digitalized systems that perform comparable functions in tax administration. The determination which type of database is optimal for a use case depends on the specific technical requirements, which, in turn, are dictated by the tasks to be optimized.
Finally, blockchains should be investigated with the mindset of “how could blockchain technology potentially benefit us?” rather than “how can we make our problem fit into the blockchain technology paradigm?” Tax authorities should evaluate blockchains like any other technological solution. Future work in this field should determine where blockchains and other technologies could be deployed to improve tax administration, and what the optimal technology for each particular purpose should be.