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 TaxGrid is to address these and improve tax compliance to nearly 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 financial intermediaries coordinate the timely exchange of investor information across a network to meet contractual obligations and, potentially, regulatory requirements, while protecting confidential 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 kind of shared record book of all dividend transactions, to help with taxation of dividend income at the source. TaxGrid is built to simplify the process for obtaining the correct tax treatment while reducing governments’ exposure to fraud.
To safeguard data privacy and confidentiality, the TaxGrid uses privacy technology to help protect investors’ sensitive information and commercial confidentiality. Zero-knowledge proof is a key feature of blockchain technology, allowing one party to prove it knows a certain piece of information or value, without revealing the actual information.
TaxGrid was developed in collaboration with government tax authorities, including the United Kingdom’s HM Revenue & Customs, the Netherlands Tax Authorities and Norway, along with companies including BNP Paribas Securities Services, Citibank, JP Morgan Securities Services, Northern Trust, APG Asset Management, PGGM Investments, and EY teams ,as well as two invited academic institutions: the Vienna University of Economics and Business, and the Tax Administration Research Center at the University of Exeter in the U.K.