EY, together with government and industry representatives, have created a far-reaching blockchain solution to address challenges in the cross-border withholding tax process.
Currently, there are some inefficiencies and complexities with the international withholding tax process in relation to dividend distributions. The goal for TaxGris is to address these, and improve tax compliance to near-real-time, benefiting investors, financial institutions and tax authorities alike.
“Blockchain technology as a remedy to the withholding tax challenge is no longer just a concept,” said Hank Prybylski, EY global vice chair of transformation, in a statement. “This project shows that in the near future, industry and governments may be able to reconcile legal and technical issues, flex to address disparate demands of taxpayers and tax authorities and promote digital transformation.”
TaxGrid is also designed to help tax authorities move toward near-real-time compliance, helping help financial intermediaries to coordinate the timely exchange of investor information across an extensive and complicated network. This would then allow them to meet contractual obligations and, potentially, regulatory requirements, while protecting the confidentiality of investor information.
The solution uses blockchain technology to automate, decentralize and share tax and financial information more securely between financial intermediaries and tax authorities by creating a metaphorical shared record book of all dividend transactions, enabling appropriate and accurate taxation of dividend income at source. TaxGrid is built to simplify the process for obtaining the correct tax treatment while increasing transparency and helping reduce governments’ exposure to fraud.
To safeguard data privacy and confidentiality, the TaxGrid uses zero-knowledge proof and other privacy preserving technologies, which help protect investors’ sensitive information and commercial confidentiality, while providing tax authorities with near real-time access to the data. Zero-knowledge proof is a key feature of blockchain capabilities, allowing one party to prove that they know a certain piece of information or value, without revealing the actual information.
TaxGrid was developed in collaboration with government departments of the United Kingdom (HM Revenue & Customs – HMRC), The Netherlands (NTA – The Netherlands Tax Authorities) and Norway, companies including BNP Paribas Securities Services, Citibank, N.A.; JP Morgan Securities Services; Northern Trust; APG Asset Management N.V.; PGGM Investments and EY teams as well as two invited academic institutions: Vienna University of Economics and Business, Austria and the Tax Administration Research Centre – TARC, University of Exeter, United Kingdom.