“Blockchain, Machine Learning: solutions against tax evasion?”

The fight against tax fraud, and in particular the fight against VAT fraud, is now one of the priorities of the French government, as pointed out by Gabriel Attal, the Minister for Action and Public Accounts. From the outset, it is important to remember that the maze of tax evasion does not date from today.

From yesteryear, at the time of ancient Greece of Alexander the Great, certain practices of enrichment by tax tricks have been identified. Similarly, under the tribunate of the Gracchi in Rome in the 3rd century BC. J.-C, a phenomenon of false land declarations which had been established by the rich Roman owners – among others the Senators – was denounced. Nevertheless, the real will of governments to fight against tax evasion is quite recent.

Over the past ten years, remarkable progress has been made with the implementation of multilateral agreements and conventions. Obstacles, previously considered insurmountable, have been reduced, even if they have not disappeared.

The obstacles

The first obstacle overcome concerned the difficulty, if not the impossibility, of exchanging information at the international level. The multilateral agreement, entitled Base Erosion and Profit Shifting, signed under the aegis of the OECD, in Berlin on October 29, 2014, when Germany held the presidency of the G20, enabled an automatic exchange of quality information between tax administrations. The exchange of information with the Dutch, Luxembourg and Swiss tax authorities is now no longer a problem. This is enormous progress even if there are still reluctance or red tape.

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The second obstacle concerned the identification of the beneficial owner, made opaque by some, to hide the traceability of financial transactions. Here again, great progress has been made with the signing of an international convention and also the establishment of a register of effective profits accessible to the general public in the European Union following the adoption of the fifth directive. Deterrent measures are also put in place against countries that can be described as recalcitrant. However, let’s not be utopian, resistance does indeed exist on the subject and, as soon as a country can, directly or indirectly, retain a tax advantage, in terms of tax secrecy or acquire it, it seeks to do so. Let us quote very big countries, like Great Britain or the USA, which use their size as well as their institutional complexity not to cooperate in a satisfactory way with the other countries. These are indeed the limits that we must overcome through international mobilization.

The third obstacle concerned the harmonization of a minimum corporate tax. The law has in fact been strengthened with the establishment of a minimum corporate tax of 15% adopted by the G20 in October 2021. Nevertheless, the methods for implementing the principle are still problematic. Today, we cannot say that we have really made progress on the subject. This is the third stage that must be reached and which is essential to remove any interest for multinationals to set up complex arrangements or arrangements for aggressive tax optimization in offshore financial centres.

The solutions proposed by the government do not seem to be satisfactory

To eradicate tax evasion, the solutions proposed by Emmanuel Macron’s government are the abolition of the intra-community VAT number, in the event of a strong suspicion of VAT fraud, but also compulsory electronic invoicing between companies which will be gradually implemented. between 2024 and 2026. Deleting a company’s intra-community VAT number would necessarily lead to its bankruptcy and not to the reimbursement of harmful losses. The solutions proposed by the government do not seem to be satisfactory.

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The use of new technologies is the most promising solution, which the government really needs to look into. It is true that the General Directorate of Public Finances already uses the new technologies internally, but it could also use them at the international level and in particular in the automatic exchange of tax information.

blockchain?

The first step could be to use the blockchain. The blockchain is a chain of blocks or digital containers, in which information of any kind is stored. We can say that it is an unalterable digital register, built on the basis of a consensus between the participants in all the stages or sequences of an operation.

To guarantee the reliability and integrity of the data, the blockchain uses “miners”, chosen among its stakeholders (participants, contributors or readers) who, according to predefined rules (conditions of use of funds) validate the information before to register them (forever) on the blockchain. Blocks of information, timestamped and added to the chain, can no longer be modified.

The participants in the system are called “nodes” and are connected to each other in a distributed manner. All stakeholders contribute to the enrichment of the database.

The implementation of a blockchain system can be a decisive solution to ensure traceability, transparency and good governance.

machine-learning

The second step would be to use Machine Learning. This tool can be defined as an artificial intelligence technology allowing machines to learn without having been previously programmed specifically for this purpose. It would identify all undeclared assets.

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We could use the blockchain to create a global digital register accessible to all national tax administrations and listing all transactions. Miners (those who validate a set of transactions within a block, hence the name “blockchain”, editor’s note.) could be employees of the SWIFT company.

This proposal obviously requires the efforts of all countries and for some, a drastic change in their normative framework.

We want to give thanks to the author of this article for this remarkable material

“Blockchain, Machine Learning: solutions against tax evasion?”


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