Exemplifying the Opportunities and Limitations of Blockchain Technology Through Corporate Tax Losses

Abstract

There is an increasing need to recognize the opportunity of blockchain technology beyond cryptocurrencies, such as bitcoin, and instead consider its potential as a technology forming part of the tax regulatory framework. We consider the potential for blockchain technology to play a digital infrastructure role for corporate tax loss compliance in Australia: a “RegTech” solution. In doing so, we identify the key features of blockchain and key use cases across numerous business sectors, then examine the role and function of blockchain in the context of corporate tax losses, where complex carry forward rules (e.g. continuity of ownership, business continuity tests) apply to avoid the erosion of government revenues. We find that in theory, blockchain could enable key efficiencies in tax compliance of corporate tax losses; however, the complexity and discretion within tax law creates real barriers for an effective blockchain solution. We conclude that blockchain offers an ability to track and flag resource allocation to broad, high level elements of the corporate tax compliance. It therefore offers potential for the greater digital ecosystem; however, it does not offer a solution in isolation. As the world progresses towards increased digitalization, this use case highlights the need for continual reflection of complex regulations and high levels of discretion, whilst balancing taxpayer rights, equity and fairness. Through digitalization, we may see increasing simplification for innovations to thrive and digitalization to meet the needs of a digitalized economy.