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Tax Harmonisation in the EU: Intelligent Tax Administration

Taxation is a sensitive topic in the EU. Yet, a more digitised and harmonised taxation will support the European economic recovery after Covid-19 pandemic.

Evelyne

Buzziol

December 1, 2020

To learn more about EU tax and how digital solutions could pave the way to a more effective and harmonised single market, download our full report, "Tax Harmonisation in the EU: Intelligent Tax Administration".

The crisis generated by Covid-19 virus has not only impacted our health, but also had serious economic consequences. Governments applied drastic measures, which limited many aspects of our lives and weakened our economies.

Hopefully, with the development of vaccines, we will gradually get back to normal. However, the economic fallout of this experience will require an even greater effort. So far, Europe has been largely lucky, thanks to the agreed recovery plan. But, we need to figure out how not to burden future generations when repaying these bailouts.

Taxation, as the primary source of countries’ revenues, is going to play a key role in that. In order to not increase the pressure on taxpayers during this tough period, governments are focussed on modernising our tax systems. Both at the private and public level, debate have arisen regarding innovative digital solutions to make taxation more efficient and resilient. 

In our latest report, "Tax Harmonisation in the EU: Intelligent Tax Administration", we explored some potential initiatives based on blockchain and AI. By identifying major issues that the European tax systems face, we outline existing and new workable use cases. While technology will not be the cure-all, it can play a significant role in improving taxation.

The advantage of Europe in terms of tax cooperation and interaction is threatened by several barriers, namely:

  • Competitive Tax
  • Data exchange
  • Barriers to Fundamental Freedoms.

Through more tax harmonisations and emerging data management solutions, Europe can address a broad set of tax related issues. Blockchain and AI can simplify tax collection and compliance, but can also make the whole system more transparent and trustworthy. 

Blockchain-Based Solutions

Private blockchains stand to improve specific areas of taxation, proving a single system for real-time processes and secure storage. As part of those options, smart contracts are also a key instrument to automate the application of complex tax law and tax collection.   

Areas where smart contracts can be applied are:

  • Value Added Tax (VAT)
  • Payroll Taxes & Income Taxes
  • Information Exchange & Storage.

Advanced Data Analytics & AI

With digitisation, governments need to adapt tax systems to this mutating reality. Collecting and exchanging data is a fundamental means to achieve this goal, as well as fighting tax fraud, especially in the European single market. 

An EU Cloud Database has the potential to integrate the European single market and match the taxing demands of the DAC6, and even greater demands of the proposed DAC7. Its introduction could improve tax compliance and collection, and even flag or predict abusive practices. 

Despite high expectations, the path for tax digitalisation is not straightforward. There are still a variety of challenges that might delay these advancements and, of course, the cost of implementation is relevant. However, governments will benefit from these improvements. More digitised and simplified tax systems may increase tax revenues and sustain the economic recovery of Europe.

Based on our analysis, we predict and recommend the following:

  1. The EU must adopt a cloud system for information sharing in the next 5 years.
  2. AI will become an essential tool for governments to adapt tax systems to the world of the digital economy.
  3. Harmonisation of EU tax regulations could be partially realised with technology.
  4. Blockchain smart contracts could disrupt current tax collection in the EU.

Evelyne recently graduated in International Politics and Diplomacy at the University of Padua. She has a background in awareness campaigns and joined the dGen team as Marketing & Content Writer Intern.