Blockchain To Streamline Costly, Outdated Exchange Of Information Process

One of the many burdens for the financial industry, in terms of processes, is the responsibility of collating tax information and communicating it to the tax authorities. Not minding the number of forms and various data migrations needed, there are different authorities in different jurisdictions to bear in mind, creating dimensions of reporting that can loom large. The process is costly, of course, demanding time and resources from those in the financial services industry. However, it's also demanding for the authorities, who necessarily form the other half of the reporting beast.

It is therefore of little surprise that governments stand to gain immensely from digital ledger technology (DLT), i.e. blockchain, which could be used to automate, centralise, and simplify the entire exchange-of-information process.

The banks say thanks

There will be a host of advantages all round if and when reporting truly becomes blockchain-powered. For example, on the bank side, the costly process of manually collecting and sharing data will be a thing of the past. Instead of the old ways, the primary work will involve setting up an application programme interface (API) to allow authorities to engage directly with the tax data.

Creating an API is something that banks will have to do for client account data anyway, under PSD II.

A natural concern will be whether you can be sure that potentially sensitive tax information is shared only with the right parties. The answer to this will be smart contracts, which are pieces of code within a distributed ledger that define where and how the information is routed. As of yet, this technology is still developing, but we will begin seeing it put to use soon.

A further advantage will be the speed of the informational exchange. Reporting deadlines, along with the late-night form-filling parties held to meet them, will eventually disappear, as relevant tax information will be given to (or, it can equally be said, taken by) authorities in real time. This, in turn, could lead to interesting changes in how companies are run, where competitive advantages are found, and how legislation is made as well.

For example, companies will have to shift their talent pools to include programmers, and also to get in the habit of modifying their business plans (if necessary) very quickly in reaction to new tax legislation, since the timespan from a law's publication to its implementation will be shorter, as companies won't need the time to...