If your tax department isn’t planning to use blockchain technology anytime soon, it should be. Blockchain can be an invaluable tool that promotes effectiveness and efficiency in a tax process that is ever-changing and complex – and it is the future of tax.
“Tax professionals sometimes equate blockchain and other technologies with a reduction in head count,” said Joel Waterfield, national tax leader for Grant Thornton LLP’s Technology Industry Practice, Blockchain Technology Service Group and Infotech Sector. “That’s a misinterpretation. Tax professionals should equate blockchain with a more frictionless workflow that allows them to make their jobs more strategic and interesting rather than laborious and repetitive. It should be viewed as a tool that allows them to grow professionally.”
Blockchain as a useful tool for tax… and more
Simply put, blockchain is a distributed ledger system that shares information on a single-source database. This ledger technology creates a single record of a transaction, or a block, that all transaction parties can access and verify. New, related transactions can be added on top of the initial record to create an intricate “blockchain” that all parties share; it is immutable and virtually impossible to overwrite. Major benefits include:
- Potentially reduced costs of transactions and storage
- The speed and versatility associated with a decentralized network
- Fraud and dispute protection
- An advanced secure and transparent data structure
It’s easy to see why blockchain is disrupting the tax function, as it can alter how tax information is collected and stored, how assets are recorded and how taxes are paid — delivering immediate information from numerous layers.
“Blockchain is a tool that can resolve particular issues for a business [for example, reconciliation and compliance], much the way an enterprise resource planning [ERP] system or third-party software has eased issues in the past,” said Waterfield. Blockchain could be integrated into ERP and business processes, usually with minimal disruption, which will drive efficiency, reduce cost per transaction and reduce risk.
Said Waterfield, “The best solutions are largely invisible, operating on more of an exceptions-based model.” That would be the ideal workings of blockchain.
Where blockchain is and is heading
Initially known almost exclusively as the technology behind bitcoin, blockchain is now considered an innovation that could revolutionize a host of areas, from data storage, payments and transactions, to registering digital assets, verifying audit trails — and completing the myriad tasks associated with tax. The World Economic Forum listed blockchain as one of its “megatrends” in 2018, with about 800 tech participants speculating governments would begin using blockchain for tax collections by 2023. (See World Economic Forum Survey Projects Blockchain ‘Tipping Point’ By 2023
Survey participants from the World Economic Forum speculated governments would begin using blockchain for tax collections by 2023.
What that means for tax professionals, said Waterfield, is that the runway is getting shorter to gain experience on this new technology. Multinational corporations should strongly consider preparing themselves for the day when they are required to use it on an external basis. This means identifying use cases, using blockchain technology, that will bring meaningful value to their company.
For tax professionals who become early adopters, Waterfield projected, “they will not only better prepare their companies for the future, but they will prepare themselves and their coworkers for the future of their careers.”
Blockchain extends vision of tax
Blockchain is a solution that extends the vision and contributions of the tax function, said Waterfield. “Blockchain is more a business solution that allows those in the C-suite to work in concert with one another.” A big hurdle faced by all businesses today is how to effectively interpret the volumes of information being collected into a real-time strategic decision, he said. When multiple ERP/data networks are involved, this tends to be a long-term process. Blockchain moves the verification process to the front of the transaction, then stores information in an unchangeable but standardized format. “That allows the disparate systems to converse in their native language while also allowing the C-Suite to see a synthesized message in real-time,” said Waterfield.
“In addition, blockchain can be used to great effect where finance and law converge,” he added. Blockchain’s decentralized format allows for the use or view of “permissioned parties” for the review and verification of the transaction in both a transparent and secure format — essentially forming a perfect vehicle for supporting financial transactions for both financial reporting and regulatory compliance.
Blockchain as a means to gain efficiency and ease
Blockchain forms a perfect vehicle for supporting transactions that incorporate finance and law, which constitute taxation.
“We all talk about making the workplace a better place,” said Waterfield. “But as long as you have to go down into the coal mines — working 24 hours a day for two months to get tax returns out — your job has a limited ceiling of improvement. Blockchain is a technology that can be used to significantly reduce laborious tasks while providing a higher quality of verification. Additionally, you’ll have more job fulfillment and be more a strategic partner with the C-suite.”
Waterfield is excited about blockchain on a personal level. “I like to think about myself as a strategic thinker who is able to help on a wide level. If I have access to better information in real-time, I will be able to provide better advice.”
Businesses want to be more efficient and independent, he said. “They want to move wealth without a bank, store information without setting up multiple networks you have to pool together, and provide the C-Suite and investors with higher-quality information. Blockchain technology can deliver on these needs and create a competitive advantage to those willing to adopt prior to their competitors.”
Waterfield predicts blockchain technology in the tax area will become commonplace within the next few years. “And there are suites of solutions available right now.”
For more information on blockchain, and how it can enhance your business model, see Blockchain FAQ
and How blockchain can transform intercompany transfers
National Tax leader, Technology Industry Practice
Blockchain Technology Service Group, and Infotech Sector
+1 703 847 7595