Germany Asks The Question
The continuous transaction clearing (CTC) model of eInvoicing is rising worldwide, and many countries in Europe are considering following Italy by mandating it for all B2G transactions. In its own investigation into whether or not the CTC/Clearance model could be beneficial in closing the VAT gap, Germany explored some interesting alternatives.
One of these involved the use of Blockchain.
Blockchain as a Governmental Tool
The German Bundesrechnungshof, its federal audit office, studied Italy’s use of the CTC model and concluded that it had not been tremendously effective in closing the VAT gap and combating VAT fraud. It proposed to the German Ministry of Finance that VAT could be addressed instead by a system using Blockchain technology.
However, the Ministry of Finance disagreed and suggested that the upheaval, administrative and financial cost of compliance would detrimentally affect businesses and, therefore, that no action should be taken at this point.
The Size of the Problem
The German government is estimated to lose around EUR 20 billion per year in tax revenues due to fraud. The problem is not going away, and therefore further deliberations will ensue about which direction to take in combating tax fraud.
The argument has been put forth that the clearance (CTC) model is not designed specifically to cope with the types of fraud being perpetrated today in an ever more digital world of online transactions.
For and Against
Several bodies have weighed in with an opinion of the way forward. The Bundesrechnungs how is for a real-time reporting system using Blockchain; the FDP prefers the Italian clearance model and a prominent German industry association the VeR is also firmly for the clearance model. Given the size of the problem and the fervour of the conversation, it is likely that a decision will be made early in 2022 to impose some form of real-time continuous transaction clearing model.
Watch this space for updates.