Blockchain is a boon for food & beverage industry

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One of the most important technological breakthrough of 21st century is Distributed Ledger Technology (DLT). This is because, DLT will bring supply chain transformation in true sense and will change the way the businesses actually operate.

While Blockchain technology is still in an emerging state, several start-ups worldwide and companies like IBM are developing new enterprise DLT applications/solutions on day to day basis which are both implementable and scalable in nature.

Many readers of this article/blog will associate the term Blockchain with Bitcoin and other cryptocurrencies. However, it is important to note that, Blockchain has applications beyond the cryptocurrencies and has potential to affect almost all industries.

So what exactly is DLT?

DLT in layman’s language is a ledger which is distributed on the computers of several parties who are participants in a particular arrangement/transaction. Whenever a transaction is undertaken, it is recorded and timestamped on common ledger which can be accessed and verified by all the participants in arrangement on real time basis. As the record on DLT is timestamped, it cannot be altered. Hence, any transaction recorded on DLT is permanent in nature.

A particular DLT participant is able to broadcast attributes of certain transaction to the ledger which can be viewed by all the parties who are DLT participant. The immutable nature of DLT and its ability to broadcast transaction over several computers on simultaneous basis is a promise that, the new technology will lead to end to end supply chain transparency.

As DLT is hosted over several computers/nodes on internet, a single system crash/failure does not result in loss of records.

DLT can also be programmed to trigger transactions automatically (i.e. if certain pre-agreed conditions which are programmed on DLT are satisfied then asset or value may be transferred between parties or contract may be entered electronically between parties automatically or payments may be made without human involvement). Accordingly, DLT enables the execution of smart contracts and smart payments.

Today, in this blog we will focus on ability of DLT to infuse supply chain transparency and control effectiveness for food and beverage industry.

Control effectiveness? Yes.

DLT through the supply chain transparency will ensure that, internal operational controls are followed throughout the arrangement.

From a layman’s standpoint, a supply chain is a movement of goods or services through several transactions from point of procurement to point of sale which may involve several stages like raw material procurement, manufacturing/processing, packaging and distribution etc.

So how it is relevant to food and beverage industry?

Let us take case in example:

In the year 2015, a multinational company selling leading noodle brand had to destroy about 27,000 tonnes of noodles in India which was worth half billion dollars after food regulators in several Indian states accused that, tests have found noodles “unsafe and hazardous” and accused company of failing to comply with food safety laws. The noodles were accused of containing unusually high quantities of chemical named monosodium glutamate (MSG) and high level of lead. MSG is taste enhancer and lead is present in water used for manufacturing noodles.

The noodle brand was market leader with 80% of market share.

The noodles went into exile from retail stores for several weeks and returned to market only when the fresh sample of noodles were tested in national laboratories post which the company won a court battle with regulators.

This is a case where company not only suffered monetary loss but a huge reputation loss, as common people gave up consumption of noodles and there were widespread protests against the company at some places.

So how DLT or Blockchain could have made a difference?

With DLT into picture, the life of noodles would have been tracked right from point of raw material procurement i.e. rice/flour/wheat procurement to point of end distribution.

For DLT to operate, every participant in the supply chain right from the raw material suppliers selling rice/flour/wheat and other ingredients, transporter (Carriage Company), contract manufacturer manufacturing noodles, quality tester, warehouse operator and wholesale distributer and would become part of DLT. Let’s assume a futuristic scenario that even the retailers.

A question which may arise in minds of readers: “What would be incentive for all the participants in the supply chain to become participants of DLT platform?”

The answer is simple. DLT will enable complete transparency and accountability. Any operational blunder or control lapse will result in potential monetary losses for all points in supply chain either in present or future terms. Being part of DLT ensures that, each transaction or step in supply chain is tracked efficiently and each participant in supply chain is aware about how product is moving in its supply life cycle in operationally efficient manner.

Let us again get back to our noodle example:

food & bev

Let’s suppose a DLT platform is set up in a manner which allows movement of noodles within the supply chain (whether in raw material, work-in-progress or finished products state) and their attributes to be tracked and broadcasted on shared ledger. For example:

  • Movement of noodles will be tracked using GPS system located either on mode of transportation (e.g. truck etc.) or packaging as goods pass through each stage of supply chain. Such movement will visible and can be tracked on real-time basis on DLT.

Thus, each participant in supply chain is aware about the location of the goods. This will also help in estimating the time/day of arrival of goods at particular participant’s premises. For e.g. wholesale distributor will be able to estimate the time/day of arrival in its warehouse by tracking the truck movement.

  • The packages (which may contain raw material, work in progress or finished goods) are tracked and verified using either Radio-frequency identification (RFID) or QR code by designated employee once it arrives at the premises of DLT participant. Also this may help in measuring the inventory at each point in supply chain as it enters or leaves the premises of particular participant and broadcasting the same on DLT.

This will provide consensus in recording of inventory quantity by all participants in the supply chain. Thus, mismatch of inventory quantity record by different parties in supply chain will be eliminated and the problem of inventory record inaccuracy may be completely removed.

  • State of goods (noodles in this case) is broadcasted on DLT by every participant in supply chain through photographs at the time/point of arrival and at time/point of exit from their premises. Another method to test state of goods is by using data sensors. Such sensors may sense a shock event (like sudden change in temperature, a damaging physical jolt or even a theft) and then create an entry into the ledger to the record the point in supply i.e. which participant had the product at the shock event, time stamp providing the record of the event, location, and  the shock.

Hence, if particular packets are tampered with or are damage, then it will be possible to for each DLT participant to know the point in supply chain where such tampering/damage may have occurred.

Further, if manufactured noodles are not in desired state (e.g.: colour, shape), it may be able to track such discrepancies.

Another advantage is that, disputes between carriage company and company will be reduced as there will be complete transparency in respect of state of goods during its movement through supply chain and any damage/shock event is appropriately tracked.

  • The quality testing firm/company may test the quality of product and will broadcast the findings on the DLT to the participants. For example: in case the quality testing firm finds discrepancy in the quality of raw materials, such discrepancy will be broadcasted on DLT and will evident to all supply chain participants which would help company to trigger instant remediation measures.
  • DLT may also help supply chain participants to smartly and efficiently manage their inventory i.e. both wholesaler and retail company will be able to track the movement of inventory and thus efficiently estimate reorder level and process new order of goods.

A DLT may be programmed with business logic to execute the reorder of goods automatically when goods reach the reorder point. This may be accompanied by smart payment when goods reach retail company.

A question which readers may ask is whether it is possible to bring competing retail companies on same DLT? The answer is – “Yes, It is Possible!”

The main noodle company owning DLT platform may program the platform so as to restrict the DLT view of the transaction leg between wholesaler and retail company only in respect of their own transactions rather than broadcasting the details of competing transactions among all DLT participants who may be competitors being at same stage of supply chain. Such programming may be essential in all cases where two or more DLT participants may be competitors being at same stage of supply chain.

From the above analysis, it can be inferred that, all the participants in the supply chain would be able to track the movement of goods and state of goods on real time basis. Broadcasting attributes of product by each participant in the supply chain leads to supply chain transparency.

Further, DLT may aid in achieving both operational efficiency and effective compliance of regulatory requirements/prescribed standards which may prevent another debacle for noodle company.

In the case under consideration, the contract manufacturer’s computer system will electronically track, measure and broadcast to DLT the nature and quantity of each ingredient used for manufacturing noodles along with the recorded levels of chemicals, lead and other metals present in water.

Such attributes will be broadcasted and recorded in common ledger and will be visible to all participants in supply chain. Accordingly, the manufacturing will be undertaken only if the ingredients, quantity and metal and chemical levels meet the pre-agreed levels/standards set by noodle company. Hence, if the manufacturer ignores the pre-agreed levels/standards and manufactures the noodles, such operational lapse will be evident to all the participants in supply chain on the real time basis. In this case, noodle company will refuse to accept the output of the contract manufacturer.

Let’s assume a scenario where DLT is programmed to execute smart contracts where the condition is that, manufacturing contract only executed between contract manufacturer and company only if the contract manufacturer undertakes manufacturing as per pre-agreed standards. No contract is entered between the parties if there is lapse on part of contract manufacturer. On other hand, DLT may be programmed in such a way that, execution of smart contracts and effective delivery of goods (as stipulated between parties) may lead to automated payments between parties (smart payments).

While the author is aware of the debate that, smart contracts may not stand the test of contract law in the court and it will be difficult to claim liability in case of certain lapse, we are looking at scenario where DLT may be transparent to audit all the steps in the transactions and the cases of legal disputes/claims will be closed to negligible.

Further, with State of Arizona in US giving legal recognition to smart contracts executed on Blockchain, we may see government in different parts of the world to recognize smart contracts.

In a futuristic scenario, where we combine DLT with artificial intelligence (AI), the manufacturing system will not operate in case the ingredients, chemical and metal levels broadcasted on DLT do not meet pre-agreed standards. This is because, the broadcasted attributes will fail the business logic programmed on DLT.

Moving ahead in the supply chain, let’s assume that product packing company is instructed to use recyclable material to pack the noodles before they are supplied to wholesalers and finally to retail shops. In this case, DLT may help in recording the attributes of the material used for packing through photographs.

Blockchain expert Michael Casey in his article “Global Supply Chains Are About to Get Better, Thanks to Blockchain” published on Harvard Business Review has expressed a view that, use of designated employee by each participant in DLT to broadcast attributes, status of products and operational aspects of its activity on distributed ledger would enable supply chain participants to monitor the activity of their employees, automatically avoid control lapses or even frauds/thefts.

For example : if the designated employee has to ensure that, particular equipment used for manufacture are sterilized before such manufacture is undertaken, then the employee has to undertake sterilization and record on DLT that, such sterilization was undertake. The designated may authenticate his/her identity on the system using the fingerprint/retina/bar code authentication procedure which may also be broadcasted on DLT to ensure that, the procedure is performed only the responsible person. The electronic/computer system may be automated and integrated with DLT such that, once the designated employee initiates particular procedure (sterilisation in this example), the same is automatically broadcasted on DLT without need of employee to manually record such step.

The cases of theft/embezzlement are common when the product is in transit in supply chain. Often it is seen that, quantity of product is reduced on account of embezzlement at certain stage of supply chain and investigating such embezzlement is difficult and even time consuming. However, the real-time recording of movement of goods and its attributes at each point of supply chain leads to avoidance or minimization of possibility of fraud or theft. Further, investigation of theft/embezzlement may be localized to particular point in supply chain where diversion of attributes were recorded.

Therefore, we can conclude DLT would serve as boon for noodle company as DLT would ensure end to end supply chain transparency and operational efficiency.

Like noodle company, in recent past, the soft drink industry in India was accused on a point that, drinks manufactured contain high levels of pesticides which may be hazardous in nature. The DLT may come to the rescue in this case too in a similar manner.

Michael Casey in his article (supra) has given another example of Mexican food chain which had problems on account of E.coli outbreak leading to closing of outlets and fall in share price of concerned company. In his article, Michael says that, problem of food contamination could have been avoided had DLT technology may have been available.

A futuristic view may be, regulators becoming the participants of the DLT and auditing the transaction on real time basis to track any potential violation of prescribed manufacturing/processing standards. However, this will require changes in existing regulations and creation of necessary infrastructure on part of government. Further, the concerns on supply chain confidentiality and data do remain in such case as government may not sign non-disclosure agreement.

Further, as auditing the transaction will be undertaken on real time basis due to DLT, the need of operational/internal auditors may be removed. In-fact, a new role of DLT auditor/controller may come into existence which simply means operational/internal auditors will perform real time audit of DLT to ensure that, transactions are undertaken/recorded as per desired management standards/control levels. However, number of employees required to conduct DLT audit/control may be significantly lesser than compared to internal audit team which company may usually employ.

A last question which readers will ask:  How the consumers know the existence of DLT and whether the value of products is enhanced on account of DLT?

In case of noodles example, let’s assume the retail outlet has a computer screen which has view-only records of DLT. When end consumer scans bar code on the noodle packets, the computer screen provides the view of product journey through entire supply cycle from point of procurement to point of sale and related qualitative attributes at each point in supply chain. On account of such transparency, the intrinsic value of product in mind of consumer is automatically enhanced, as end customer is convinced that, product is manufactured as per certain regulatory and quality standards.

This feature may be most relevant in cases where company selling a particular product claims that, product is manufactured using special raw materials. For example: a particular beverage company may claim that its mango juice is produced using the alphonso mangoes from a particular village in Ratnagiri district in India. Some of the readers may recall alphonso is called as king of mangoes and the highest quality is available only in certain villages of Ratnagiri district. The DLT records may help end customer to verify whether the mangoes were actually procured from the source as claimed by the company.

Let’s consider a situation of product recall from retail outlets (like a situation of noodle company above), where the company is required to recall products and in some cases also destroy such recalled inventory in an environmentally sustainable manner.

In this case, DLT may be instrumental in tracking end to end movement of goods from retail outlets to the point they are destroyed in environmentally sustainable manner. In fact DLT may help company to verify if the planned destruction is actually undertaken in manner which adheres to law.

Further, moving away from food & beverage industry, if we consider automobile industry where product recalls are more common then, DLT may be useful for both end consumers and consumers who may view DLT records to track the movement of the vehicle from dealer premises to the automobile company’s workshops and status of the replacements etc. We will discuss the relevance of DLT to automobile industry in separate blog.

One thing is clear, the Distributed Ledger Technology is a boon for food & beverage industry. This is because, the transparency and real time audit records will enable industry to not only improve the product quality, optimise costs, bring operational efficiencies & transparency but also demonstrating to the regulatory authorities that, prescribed standards were effectively complied with. To conclude, the real winner of such supply chain transformation will be end consumer who will have access to best quality and hazard free products.

(Sagar Wagh is a Blockchain Enthusiast and Supply Chain Specialist based in London. He can be reached at sagarwagh@gmail.com)

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Futurism: Potential Application of Blockchain in Multinational Transfer Pricing

images BlockchainBy Sagar Wagh[1]

“You say You want a Revolution? Here it is….

The application of Blockhain technology in multinational transfer pricing aiding MNEs to efficiently execute inter-company transactions and simultaneously meeting the arm’s length standard will be revolutionary indeed. This is first international concept paper on this subject. The applications of Blockchain/DLT in Multinational Transfer Pricing as discussed below are futuristic in nature. The DLT/Blockchain as a technology is at very nascent stage and it may take few years before the applications discussed in this paper are brought into practice”

Several friends do complain that the concept of Blockchain is ‘Greek & Latin’ to them and while they see several articles on Blockchain technology being published on internet on day to day basis, it is impossible to understand the concept as a layman.

To begin with, it is important to divorce the concept of Blockchain from Bitcoin. Blockchain is a platform on which the bitcoin network runs. However, Blockchain as a platform is wider than Bitcoin and such platform has several applications which may be beyond Bitcoin or other cryptocurrencies. Author is of the view that, Blockchain technology will have a transformational effect on all industries and will bring real supply chain refinement.

In common man’s language, Blockchain or Distributed Ledger Technology (DLT) is a distributed ledger or shared ledger which is a ledger distributed/shared over computers of several parties who might be participants of particular transaction or arrangement. Such parties may become DLT participants. Accordingly, the DLT participants share a common ledger.

Accountants who are reading this blog will be well aware about the term ‘ledger’. Ledger is a book in which transactions are recorded by the company. However, DLT is not just a financial ledger. It can be understood to be a multipurpose ledger which may record operational, financial, qualitative or quantitative aspects of particular transactions/arrangement.

Enter Blockchain/DLT concept: the transactions are recorded with timestamp in distributed ledger simultaneously across several computers which may belong to participants of DLT. The transactions once recorded on DLT are irreversible or unalterable. Any attempt to modify recorded transaction will require a particular participant of DLT to pass a new entry or block on DLT in addition to original block. Such attempt will be evident to all the participants in the DLT. Hence, a transaction on DLT is permanent in nature and it is technically impossible to alter a recorded transaction.

As DLT is spread over several computers on internet, a single system crash/failure does not result in loss of records.

At a particular point of time, the view of distributed ledger is same for all the participants on DLT. The immutable nature of DLT and ability of all the parties in arrangement to access all the ledger records on real time basis provides a promise of end to end transparency and security.

Each participant in DLT may be able to broadcast and record the attributes of a particular transaction on the ledger.

Further, DLT can programmed with business logic to validate only certain type of transactions and automate such transactions, if conditions are met (smart contracts). Also, the payments for transactions can be automated in case the programmed conditions are satisfied (smart payments). The ability of DLT to execute smart contracts and enable smart payments will be major application for MNE groups in their cross border transfer pricing apart from fact that DLT may bring supply chain transparency and ensure robust internal controls.

How DLT will applied in Multinational Transfer Pricing?

As per United Nations Transfer Pricing (TP) Manual, about 30% of global trade is intra-firm trade.

Each country has transfer pricing regulations in its tax law which require cross border transactions between related parties (commonly referred as associated enterprises or AEs) to adhere to arm’s length price. Arm’s length price is the fair price which would mirror the price applied or proposed to be applied between non-associated enterprises/unrelated parties in uncontrolled conditions in open market.

The DLT which will be applied for MNE transfer pricing purposes will be private DLT/Blockchain. This is because, the ledger will be closed shared ledger with participants who are parties to intra-group arrangement/transactions rather than, open public Blockchain network which may accessible to general public (i.e. by parties having no connection to the transactions/arrangement).

DLT can serve as very important platform in cases where the supply chain participants in respect of particular end product/service consists only of AEs i.e. AEs are supply chain participants from point of procurement to point of sale. In such cases where entire supply chain of product/service consists of AEs (i.e. entities of group across the world are raw material procurement service provider, logistics support service provider, contract manufacturer, distributor etc. in relation to single product/service), all such AEs would be participants/nodes of a private DLT. The DLT ensures that movement of goods across entire supply chain is tracked and also journey of product through supply chain life cycle (i.e. stages of raw material procurement, manufacturing, logistics, distribution, marketing & promotion etc.) is broadcasted and recorded on distributed ledger which is visible to all parties in MNE group’s product supply chain. Such transparency will lead to operational efficiency. The operational efficiency is achieved because of recording and tracking of transactions and related operational aspects across the supply chain which ensures that, internal controls in relation to arrangement/transaction are adhered to (for e.g. : whether particular procedure is followed or not to abide by prescribed manufacturing standards would need to be broadcasted to DLT with evidence). Any lapse in controls will be clearly recorded and evident to all the participants of DLT.  Further, each participant may broadcast the attributes of the goods (i.e. current state of goods, quantity [inventory calculation] etc.) to DLT which may be recorded on such distributed ledger.

Readers may note that, setting up DLT platform with all the unrelated parties or combination of AEs and non-AEs in a product/service supply chain to record the transactions in distributed ledger is very much feasible and practically achievable. While it may not be feasible to broadcast the information on financial dealings between two parties on such distributed ledger, such distributed ledger with unrelated parties as participants on DLT may help in achieving supply chain transparency and operational efficiency. However, currently certain software giants are aiming at introducing functionality in DLT platform which would create an exception where financial transactions may be recorded only between dealing parties on their ledger and may not be broadcasted among all the parties. The other parties would only be made available with the detail that, payment for the transaction took place. At this stage, for the purpose of this blog we will not go into debate as to whether such functionality is moving away from very concept of distributed ledger and whether the all the participants would agree to such exception as very foundation of distributed ledger is trust between parties.

Coming again to situation where all the distributed ledger participants/nodes are AEs who are parties to the product/service supply chain – apart from ensuring operational efficiency and supply chain transparency in arrangement, the distributed ledger will be highly effective for inter-company transfer pricing as the MNE group will be in position to program certain business logic in the DLT in advance on account of which the TP policy and terms and conditions of the inter-company transactions will be programmed on DLT. The DLT will operate on ‘if – then’ condition i.e. contracts between parties will be executed only if the ‘if – then’ conditions are satisfied. For e.g. : Company A requires 1000 tonnes of bearings from Company B, the contract will be executed only if Company B is able to broadcast that, it has 1000 tonnes of bearings available in its inventory. Further, the payments will processed automatically only if the transaction is recorded as per pre-determined TP policy. For example: Company B which is contract manufacturer has to charge cost + 15% on goods manufactured as per MNE Group’s TP policy. ‘Company B’ will raise invoice on ‘Company A’ providing details of its costs and associated mark-up as per group TP policy. In case the invoice and details broadcasted on ledger meets group TP policy, the payment will be automatically released from ‘Company A’ to ‘Company B’. This is how concept of smart contracts and smart payments will be executed in case of inter-company transactions. The legal experts/lawyers have been questioning the legal sanctity of smart contracts and associated validity in court of law. However, transfer pricing professionals would admit that, contracts/agreements between AEs can be entered smartly through DLT. This is because, the probability of legal disputes between AEs is close to nil. The contracts in paper form may be relevant only for demonstrating the terms and transaction to tax authorities during tax audit. However, we are speaking about future where DLT would have reached maturity stage and tax authorities may be given access to distributed ledger records to audit the transactions. Further, presence of paper contract may be relevant to unrelated acquirer who may enter into transaction of acquiring particular entity of the group which may be part of such supply chain.

However, we should not view the utility of DLT with narrow eyesight.  DLT platform may be highly relevant in case of MNE groups with several subsidiaries and highly active intra-group trade. In this case, it may be difficult for headquarters (HQ) entity/country to centrally have a complete picture and control of all the intra-group transactions. Further, implementing a common TP policy for the entire group may be highly desirable but difficult to achieve on account of expanded nature MNE group.

So how can we use DLT in these cases?

Consider a multinational enterprise (MNE) group which has about 500+ subsidiaries across the world and intra-MNE trade is very active. In this case, we can build DLT to have all the 500+ entities as participants on the distributed ledger. TP policy of MNE group is designed based on ex-ante (before undertaking transaction) transfer pricing analysis of the transactions so as to ensure that any transactions between AEs meet arm’s length test when ex-post (after undertaking transaction) transfer pricing analysis. In case under consideration, a global TP policy of the group may be designed and programmed into DLT. As discussed earlier, the transaction the will be undertaken and validated only if they adhere to the TP policy, other terms & conditions of the transaction and accordingly meet consensus among all the node participants.

In countries like India, where interest is levied by tax authorities on receivables/outstanding balances in respect of inter-company transactions, the smart automated payments on account of DLT may eliminate the TP controversy in respect of outstanding receivables in entirety, as the payment will be released once the business logic programmed into DLT platform is met.

One of the limitation of DLT is the case where TP policy applicable for different group entities is different and the HQ entity may not wish to infuse transparency among all the group participants. In such case the HQ entity may choose that financial aspects of transactions may be recorded only between dealing parties and HQ on their ledger and may not be broadcasted among all the parties. However, we all are conscious of the fact that, transparency is the new ‘mantra’ in transfer pricing on account of introduction of Action 13 Master File requirements which requires the MNE enterprises to disclose its TP policy, intangibles, supply chain, value chain details etc. Hence, in new world of transfer pricing transparency, hiding details of TP policy among group participants may be extremely difficult.

Another inter-company arrangement which is novel in nature but may have high potential for DLT platform is cash pooling arrangement. Without going into technical aspects and types of cash pooling arrangements, author would just touch upon basic aspects. A cash pooling arrangement enables MNE group to combine its credit and debit positions in various accounts spread across group entities into one account. Such one account may be maintained by cash pool leader entity. Cash rich entities in the group may deposit funds with leader in return of the interest income. Part of such funds are then provided to group entities in need of funds as loans and interest is charged. The difference between the interest receipts on deposits and interest payments on loans may be spread earning for cash pool leader. Also leader may deposit the cash with third party banks on which it may earn interest. It is important that, all interest payments and interest receipts among group participants should adhere to arm’s length. Further, any interest spread earned by leader over and above arm’s length may be allocated among cash pool participants in predetermined ratio, as it may important from transfer pricing standpoint that benefits of the arrangement are shared among participants. In this case, the distributed ledger would ensure that, all the payments and receipt among parties to the cash pooling arrangement adhere to arm’s length and there is complete transparency and record of movement of funds across the group. Further, the DLT platform may be programmed to achieve last leg of cash pooling arrangement i.e. split of excess spread among the cash pool participants.

Taking the above concept of splitting excess spread to a different tangent, the distributed ledger may be programmed with predefined logic (residual/contribution profit split mechanism or process contribution analysis) to achieve split of profits in different type of transactions i.e. the DLT may be instrumental to achieve arm’s length profit split.

While author is not supporter of cryptocurrencies, the author would like to bring the perspective on table where cash pooling arrangement may be structured among AEs using cryptocurrency removing the need of intermediary i.e. bank whereby all the entities in cash pool arrangement financially transact with each other only by using the cryptocurrency (which do not require need for bank account, bank clearance and deposit) rather than using physical money. However, it should be borne in mind that, cryptocurrencies are not regulated, do not have legal acceptance and exchange rates of such currencies highly fluctuate. Further, for this to be practically implementable, we are envisaging the world were cryptocurrencies will be widely accepted as tender of exchange between parties to the business arrangements on part with fiat currencies.

The next question is, do tax advisors (accounting firms) of company have a role? The answer is ‘Yes’.

The tax advisors/accounting firms may be participants of such distributed ledger along with the AEs. The role of the tax advisors may be to conduct real time audit of inter-company transaction to verify whether they actually adhere to arm’s length by performing TP analysis and validate them in DLT. In this case, the payment would be released automatically only if the arm’s length pricing requirement is validated and confirmed.

The last section of this blog is turning towards super futurism by considering involvement of tax authorities in such MNE Group’s DLT. Consider a future where tax authorities are one of participants of distributed ledger which may enable them to do real time transfer pricing audit of inter-company transactions. This may require change in tax regulations and creation of necessary infrastructure on part of government. Further, the concerns on confidentiality of data do remain in such case as tax authorities (government) may not sign non-disclosure agreement with taxpayers.

(Sagar Wagh is international thought-leader in the areas of international tax and transfer pricing based in London, United Kingdom. Sagar is also Blockchain enthusiast and supply chain specialist. The views expressed in the article/blog are his personal views. Sagar can be reached at sagarwagh@gmail.com)

[1] Sagar Wagh is a Blockchain Enthusiast, Supply Chain Specialist and International Tax thought-leader based in London. He can be reached at sagarwagh@gmail.com. The views expressed by author in this article are his own views

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