Confidentiality-preserving Validation of Tax Documents on the Blockchain

Abstract

Information exchange between tax administrations, businesses, and auditors is key to effective tax enforcement. Therefore, organizations proposed the application of blockchain technology to interconnect the different actors and increase tax transparency. However, the lack of confidentiality measures hampers further development. Especially, businesses are concerned about the disclosure of commercially sensitive information that might threaten their competitive advantage. In this paper, we investigate how the application of zero-knowledge-proofs can contribute to solving the dilemma between transparency and confidentiality in blockchain-based tax systems. To meet this end, we provide a conceptual design of a confidentiality-preserving distributed tax ledger. Moreover, we present a prototype addressing reporting obligations in the context of value-added tax. Our evaluation shows that zero-knowledge proofs are an effective measure to trade off transparency against confidentiality. Still, their application is challenging and future research must focus on better abstractions of proving statements.