Towards Tax Compliance by Design: A Decentralized Validation of Tax Processes Using Blockchain Technology

Abstract

Tax compliance requires businesses to implement compliant processes but also documenting and reporting mechanisms to proof a compliant process execution. Non-compliance has far-reaching consequences ranging from financial penalties to criminal investigations, thus threatening the competitive position of a business. Therefore, the Organisation for Economic Co-operation and Development (OECD) investigates means, among others the blockchain technology, to ease the tax compliance efforts of businesses. However, ensuring tax compliance in business processes is a complex and challenging task, which is why tax compliance management is often implemented as an independent area of responsibility within a business. Nevertheless, an integration of tax compliance into the business processes is necessary to enable compliance by design, resulting in efficient processes. In this paper, we investigate whether blockchain technology can contribute to tax compliance by design in business processes. To meet this end, we provide a conceptual design and a prototype for compliant process execution in the context of value-added taxes.