The system entails extensive compliance, without avoiding fraud. This results in substantial administration costs and ultimately costs the EU over 50 billion euros in foregone VAT per year - excluding collateral cost. In other words, it costs each of us over 1,000 euros per year. We have developed an automated end-to-end system which labels transactions and makes money smart. The system distinguishes between payments to suppliers and to tax authorities. As such, our tool results in fraud prevention, reduced compliance costs and real-time insights for tax authorities. The solution has been developed in line with PwC's Purpose and the European Commission's Action Plan on VAT.
We - being Lilian, Kayoko, Erik, Ferdinand, Chris and Tommie - started with our ideation of how Blockchain could change the world of Tax, and VAT fraud in particular. Before Monday the 1st of August (the start of our program, so D-Day!) we needed to have formulated the problem we aim to solve, as well as the envisaged solution. When starting, we were under the assumption that we had a clear and complete picture of the concept of VAT fraud. Zooming in on VAT fraud however showed us that not all insights and elements were as clear to us as expected, ending up with over 40 questions we did not have an answer to. This gave us the opportunity to simplify the problem we were facing:
A supplier, who sells a good to a customer for a price including VAT, has a legal obligation to pay this VAT collected to the tax authorities. We believe that in case of fraud, there is no actual payment of this VAT by the supplier to the tax authorities. Both the supplier as well as the VAT collected by him, disappear and cannot be traced. Therefore, on an EU level, tax authorities miss out on approximately EUR 50 billion on VAT to be paid per year.
On the second day of preparation, we asked ourselves how to get answers to the 40 questions on VAT fraud. As we realised that we would not be able to do this ourselves, we searched for someone outside PwC who was able to provide us with answers... and who better to ask then a fraud expert from the FIOD? With this expert we brainstormed on the questions, and together we added more variables to our problem statement and searched for possible solutions. All this resulted in an illuminating idea, that we would present to Startup Insight (helping us developing the Proof of Concept) of our fist (D-)day! On Monday the 1st of August, we presented our problem statement and our solutions to Startup Insight and their developers. After receiving both applause and feedback, we worked out the Why, How and What of our squad, being both the purpose why we are doing this, as well as the supporting business case.
We want to build trust in society, solve important problems, and allign this purpose with the strategy of the VAT action plan. And how better to do this than with Blockchain, which is trust by design? It could enables us to label (elements of) transactions, so we can make money smart. With that, we could potentially be able to solve important problems such as fraud, as well as lower the compliance burden for our clients.
To have the developers actually build this solution as a Proof of Concept, we had to step-by-step take them through the process of how our solution would look like, and what kind of in-build features the Proof of Concept should have. In the end, after a journey of four days, and a wall full of post-its with all the drop down menus and features of our solution, the developers were ready to start building!