Payroll Tax & the Blockchain
Tax Notes International, March 13, pp. 1007-1024, March 2017
Boston Univ. School of Law, Law and Economics Research Paper No. 17-17
32 Pages Posted: 18 May 2017
Date Written: March 13, 2017
Bitcoin is an application that runs on blockchain technology. Blockchain is a foundational technology that is bringing in the second era of the Internet – the era where value can be transferred, rather than just information.
Blockchain is developing along a four-stage path similar to that which TCP/IP took. Both are foundational technologies. TCP/IP brought the Internet, and eventually brought significant (transformational) technological changes in business like Amazon.com and Skype. These are changes that could not have been forecast at the beginning of the Internet age.
Blockchain is an immutable distributed ledger. It replaces the inefficient use of multiple centralized ledgers. It will support smart contracts that automatically make payments, adjust accounts, and coordinate records among multiple organizations.
A payroll application on blockchain’s distributed ledger will allow employees to be paid, and all related deductions and deposits to be made in real-time. It will allow multiple government agencies to immediately have audit-level access to all employee records, and all employer matching-payments. With a fiat crypto-currency a payroll application on the blockchain will allow immediate global payroll compliance at a fraction of the cost of current payroll compliance.
Based on the trajectory of ITP/IP’s development it is reasonable to assume that a payroll application will be seen on a blockchain (most likely Quorum, a private/permissioned blockchain based on the Ethereum platform) by 2018-2021. The first one will be constructed either by a government (Finland or Estonia) or by a private company (in the USA). Costs will be so low that the industry will consolidate (picture the arrival of Amazon.com among the group of brick and mortar books stores that preceded it in the late 1990’s).
A traditional payroll service provider today needs to prepare for this change by developing a pilot program internally that will educate its workforce to the advantages and operational intricacies of a service based in the blockchain.
Keywords: Blockchain, Ethereum, Payroll, Tax, Foundational Technology, Smart Contracts, Payroll Service Provider, Futurice, Quorum
JEL Classification: F10, K10, K14, K34, K39
Suggested Citation: Suggested Citation