Publication of the dissertation by Dr. iur. Robert Müller LL.M. on the use of blockchain solutions to combat VAT evasion

We would like to draw your attention to the dissertation entitled “Combating VAT evasion in cross-border digital services provided to consumers using blockchain technology” by Dr. iur. Robert Müller LL.M., which has just been published and is relevant for IDSt Expert Committee VI.

Robert Müller is vice-chairman of IDSt Expert Committee VI (“Distributed Ledger in Taxation Processes”). The expert committee focuses on evaluating tax use cases of distributed ledger technologies such as blockchain. The identification and implementation of potentials of blockchain technology for tax law will be elaborated by the IDSt expert committee. Recommendations for technical standards and governance models will be drafted. Dr. Robert Müller’s work shows that new technologies in an increasingly digital world offer potential for ensuring – as required by constitutional law – the uniformity of taxation.

Challenges in the taxation enforcement of the digital economy

The world economy is increasingly digital and global. As a result, cross-border services are increasingly being exchanged between entrepreneurs or provided to consumers, especially in e-commerce. As a rule, value added tax is then also incurred. Using the example of cross-border digital services provided to consumers (e.g. by downloading games or software, by streaming video or music, etc.), Robert Müller discusses the challenges of VAT control by the tax authorities. As the European Court of Auditors highlighted in a 2019 report, this area of e-commerce is particularly vulnerable to VAT evasion. The author then explains the paradox that, despite the digital provision of services and the accompanying documentation of transactions in e-commerce, the tax authorities do not have any suitable investigation tools at their disposal.

In the EU, the so-called destination principle has become established for the provision of digital services to consumers, i.e. value-added taxation takes place at the place of performance of the consumer. This development resulted in complex regulations at the EU level and the implementation of the former mini-one-stop store. However, this results in challenges for uniform law enforcement.

Difficulties in e-commerce investigations

The author elaborates concrete difficulties of the tax administration in e-commerce investigations and concludes that national investigative measures and international administrative assistance can only partially uncover the incorrect fulfillment of VAT obligations in e-commerce. This leaves an investigation and enforcement deficit for digital services provided across borders.

It is highlighted that the core element for successful investigative leadership could be in the information gathering of relevant flow data from intermediary data and payment service providers. In the author’s view, on the other hand, the mere identification of high-risk health care providers does not, by itself, guarantee widespread enforcement of the law.

Blockchain-based collection mechanism in e-commerce

To improve enforcement, the author relies on a blockchain-based collection mechanism in VAT. Its model builds on the split payment method that has been under discussion for several years. In such a system, the payment of VAT to the tax authorities can, unlike in the past, already take place during the execution of the payment transaction by the payment service provider. The VAT thus paid early can then no longer be evaded. Blockchain technology is used to transmit information. In this decentralized procedure, the supplying entrepreneur must also provide VAT-relevant information when issuing the invoice so that the payment transaction can be initiated by the consumer and the VAT can be deducted by the payment service provider. The author emphasizes that the correct implementation of the system is possible only if adjustments are made in the payment system.


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