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Tax Harmonisation in the EU: Intelligent Tax Administration

This report explores the potential of emerging data solutions to improve taxation and increase harmonisation across the EU single market. Thanks to new blockchain and AI solutions, the EU can simplify tax collection and compliance. Further, this increased tax harmonisation and support for the economy are more necessary than ever, as we recover from the fallout of the 2020 pandemic.

To learn more about an intelligent and harmonised tax solution for the EU, download the full report.

Tax collection is the primary means to offset the consequences of the Covid-19 economic crisis. Yet, increasing pressure on taxpayers will undercut these efforts. Therefore, countries must make taxation more efficient, to recover funds, without increasing pressure on taxpayers. 

Many organisations and governments around the world are already exploring new potential solutions in tech. Blockchain or AI are of particular focus, for their role in improving data collection, exchange, and management. Moreover, these updates bring the opportunity to improve transparency and usability.

The EU is in a better position for tax cooperation and interaction, thanks to its single market and integrated policies. However, tax harmonisation issues still limit the efficiency of tax systems and the movements of citizens and businesses within the region.

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What main changes the EU needs to pave the way for more efficient, harmonised taxation?

To learn more about an intelligent and harmonised tax solution for the EU, download the full report.

Taxation plays a crucial role in our daily life. It is the main source or revenue for countries and enables the issuance of public services to improve the quality of citizens’ life. Its improvement is a key topic in many governments and international organisations. 

But, tax harmonisation is a sensitive topic for many EU member states. Some member states aim to remain competitive in the global tax market by providing low or nil tax rates. But, these tactics also undercut trust between countries, and harm the goal of a common market. After this year's global pandemic, a more integrated system is more necessary than ever. Europe needs important reforms to achieve this ambitious goal.

The main issues to overcome are:

  • Competitive Tax
  • Data Exchange
  • Barriers to Fundamental Freedoms

With a more harmonised tax system and more efficient data exchange and tax collection, some of the much needed tax revenue could be reclaimed.

What's next to improve tax systems?

To learn more about an intelligent and harmonised tax solution for the EU, download the full report.

At the governmental level, there is already debate about emerging technologies and how they can make tax systems more simple, transparent, and efficient. Blockchain and AI present some of the most ambitious, but also most exciting and promising developments in this field. Although these changes will not be easy, governments around the world are researching, and some have already deployed advanced technology. 

A blockchain-based initiative stands to improve specific areas of taxation, especially with the implementation of smart contracts for greater automation. Specifically, those solutions can enable real-time exchange of taxpayers’ data, systems to secure the privacy of taxpayer data, and real-time tax collection and refunds.

Further, there are existing tax use cases of blockchain:

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

The EU designed the latest DAC amendments to expand the scope of exchanged mandatory  information between EU tax administrations. However, to be successful, data exchange requires efficient use of data itself. Advanced Data Analytics & AI offer necessary solutions to manage and effectively use the new levels of data that tax administrations must handle. 

What are the main challenges in adopting these technologies?

To learn more about an intelligent and harmonised tax solution for the EU, download the full report.

In spite of the high expectations on these innovative solutions, this change will not be a straightforward process. There are still many challenges that might delay the application of those technologies.

  • Personal Privacy: the EU should set limits on the electronic use of taxpayers data through specific regulations, including for government institutions.
  • Technology Speed: blockchain-based solutions may not be sufficiently developed to process such large amounts of data at the necessary speed yet.
  • Costs of Implementation: implementing a blockchain or AI on the EU level is expensive, and may not be at the reach of all member states budgets.
  • Qualified Hires and Human Resources: this might result costly for governments, especially in blockchain.
  • Quantum Computing:the potential to solve the cryptographic puzzles that secure data on blockchain is in the works, although not yet viable.
  • Political Consensus: consensus is always difficult at the EU level, but it is likely easier to reach than harmonised tax rates.
  • Oracles: due to the immutable nature of blockchain, they must be highly secure and accurate.
  • Securing Smart Contracts: more developments in coding and auditing to secure smart contracts must happen before they can be used at a large scale.

What can we predict for the near future?

To learn more about an intelligent and harmonised tax solution for the EU, download the full report.

Economic recovery will substantially increase countries’ spending. Although the EU already improved our tax systems making them more resilient and integrated, there is still room for further steps. By implementing innovative blockchain and AI-based solutions, we can improve taxation efficiency and compliance. Namely, the EU needs a single, integrated, and intelligent system to harmonise taxation and most effectively manage the data of taxpayers from 28 countries. 

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

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

Costs and implementation of those options are obviously relevant. But, if the EU can adopt coordinated and well-planned approaches, benefits for our taxation and competitiveness will be worth the effort. Other countries are already revealing that investments into intelligent data technology more than pay off.