Blockchain and Public Policy
Written by: Joost De Leeuw
The OECD (Organization for Economic Co-operation and Development) has over the years been essential for the development of international tax law standards. It is their BEPS guidelines that have incapacitated many a tax evading set-up. Now, it seems that the OECD will also be the foremost authority in the field of blockchain and public policy. Early September it hosted a prestigious international conference on this subject. DTS were invited to join as tax specialists.
Most delegates – policy makers, consultants, scientists, politicians – agreed that the introduction of blockchain will be as disruptive as the development of the internet itself has been. And ‘disruptive’, like ‘revolutionary’, is an interesting word: rather positive for technicians and developers, somewhat worrying to government officials. Things will change, so much is clear. And of course: most of that change no one can as yet foresee. The ‘ledger of truth’ is on its way.
The influence of blockchain technology on taxation is twofold. First of all, there is the issue of how to tax blockchain-related profits. Most obvious example of this is profits gained with cryptocurrency mining and speculation, but there is also an increasing number of companies paying out salaries in various cryptocurrencies. Many countries are struggling with qualifying such gains. The Dutch treasury department has published some guidelines, but these are partly so vague and partly so wrong, that they need to be replaced soon. The line-up of the OECD conference speakers, however, suggested that Eastern Europe is leading the way in this field. Slovenia has adopted specific cryptocurrency paragraphs in its was income tax act. Serbia sent its prime minister Brnabic to the event.
The other, more practical application of blockchain technology in the world of taxation is the levying of taxes itself. Withholding taxes especially could be automatically levied. Imagine legislation that would require every employment contract to be a blockchain-run ‘smart contract’, splitting up every payment in one part for the employee, and another for the state. Even VAT could be paid to the tax office directly upon purchasing a product. And back to the purchaser, if he is a VAT entrepreneur. In general, money movements can be monitored infinitely better than now. Why would the ECB not eventually back up the Euro with a ledger of truth? Every single Eurocent forever traceable, every transaction logged.
Of course, and the attentive reader felt we were getting here, there is also reason to worry. The ‘immutability’ of blockchain technology seems to preclude the ‘right to be forgotten’. The internet already has a frightening memory – the blockchain is equally omniscient, but harder to shut up. The ‘ledger of truth’ can be your ally, but your enemy as well. On the other hand, blockchain applications that do circumnavigate privacy issues (the Moneiro coin is the most infamous example) also manage to completely avoid any government or institutional control, which makes them extremely vulnerable to criminal use. This dilemma between the money laundering dangers of anonymity and the privacy issues around immutability will likely dominate public debate on blockchain and policy for the next couple of year. DTS is happy to be able to contribute to this debate.
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