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I feel that we need to change the way we structurally design the tax law production
process in order to adapt it to -driven regulation that bene ts from the evolution of
technology and business in a digitalized global economy. Redesigning how we
conceptualize some tax law segments to make them AI processing-compatible will be
a landmark rst step that can lead to many other possibilities. Though this is easier
said than done, it’s possible to make signi cant progress in the international taxation
eld. We must seriously consider doing this as soon as possible and completely out of
the current international “battle eld circuit” of digital economy taxation, in which tax
sovereignty and taxation rights for the new era are being discussed in a heated basis
and with clear and of cially recognized discrepancies between different country’s
interest groups and economic blocs. We must then advance and work on the structural
approach and the logic of the system in parallel.
The capacity of a country to autonomously write up and design its tax code system is a
critical foundation for each sovereignty, and there is no need to break with this entirely
to rede ne the boundaries of this concept for a data-driven, technology–centric global
economy and make it a reality. Nonetheless, some sacri ce in national autonomy is
absolutely necessary if we want to magnify rather than obstruct the economic
interdependencies among countries and blocs in the digitalized economy.
Much has been written about the need to regulate the elds where AI will make a
signi cant impact. However, the idea behind this article is different: it explores how we
can rethink the way we design regulations to make them suitable for post-coming-
into-force automatic execution and building applications for them that contribute to
social progress. And “tax regs” would be a perfect lab.
The idea would be to develop a structural AI-driven regulatory design that can be used
by supranational organizations, governments and local tax administrations as a
founding base to foster international commerce and provide certainty in some parts of
it.
For doing so, we need to develop teams that can build up a comprehensive
understanding of the production/reduction of tax policy problems/objectives within the
logic of computation, at least for some segments/pieces of every new tax regulation
where that “logic-reduction” would be perfectly possible for an expert in the eld.
De ning a new taxonomy for each tax regulation would probably be necessary. It
would be dif cult and impractical to carry out this exercise without connecting the
approach to related elds where regulations use part of the same data. In any case, a
strategy and roadmap must be de ned.
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12/16/2018 Embedding A.I. and block-chain in Digitalized Economy Tax policy design
In the last 10 years, we have seen an increased, vibrant focus on applying AI to legal
systems, mainly oriented towards developing knowledge-based systems and smart
information retrieval tools.
Most AI-based research is focused on enabling machines to perform tasks that would
otherwise require human intelligence. In the legal eld, past authors proposed
semantically driven web services that could allow end users to negotiate and mediate
in consumer disputes, family commerce, etc[1].
But let’s take a step back and elevate ourselves to gain a broader perspective. Only
then we will realize that we need to produce some segments of the digital economy
regulations to be AI-ready, integrating machine-dominated logic that can help us focus
on other parts of the regulations or international economic agreements.
We could assert that all regulations have two types of articles in their body text:
Objective regulatory segments: the articles within any law that establish
objective requirements or set off triggering elements that place you within the
bounds of that regulation, and enumerate the consequences if you fall within it
and fail to comply with it. In these segments, thresholds, numbers, percentages,
formulas and measurable data are behind the key concepts and are more easily
processed using NLP techniques.
Subjective regulatory segments: They are subjective in nature, or at least require
a level of interpretation and a value judgment.
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12/16/2018 Embedding A.I. and block-chain in Digitalized Economy Tax policy design
The objective regulatory segments are hard-fact driven and have the support of data
available for machines to review their application with precision. These segments,
whose text or requirements can be more easily reduced to be comprehended by a
machine— which is connected to the right data sources with the right timing or
sequential logic—can be used to establish co-relations with data from taxation and
other disciplines as well.
Tax policy regulations also have subjective segments, just like any other regulation, and
the more we move to the supranational level, the more they have. This is a discipline
with probably one of the highest proportions of objective segments, which are typically
measured in numbers, attributes related to numbers, parameters or formulas, or data
that can be gathered regularly from a company’s or digital platform’s enterprise
reporting systems. Redesigning the way we produce these segments to increase the
quality of their objectivity for later machine automatic potential processing will produce
very positive synergies.
In comparison with other regulations, it will have a relatively bigger proportion that can
be “software-de ned,” precisely because part of what it covers is a structured type of
data with strong numeric and categorization base. So clustering information in this
eld for the purpose of training the machine and de ning an AI strategy should be
easier to apply than in other regulatory elds (such as penal/criminal law for instance).
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12/16/2018 Embedding A.I. and block-chain in Digitalized Economy Tax policy design
The structural de nition itself will require a separate article that will follow later, but
will need to be initially based on supervised learning from an AI-technical outlook.
There are many bene ts that can be achieved in the international tax scheme by
applying this type of framework, but the most evident is moving to automatic returns
in personal income tax and in the more complex eld of corporate tax returns for big
MNEs or automatic custom clearance for products at borders.
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12/16/2018 Embedding A.I. and block-chain in Digitalized Economy Tax policy design
This recent concept requires a socially-driven research approach. Concern that humans
will lose the capacity to control self-trained algorithms is reasonable, but distributed
ledger technology that informs blockchain comes into play at this point in the tax
arena.
Many organizations, like the New York University’s AI Now Institute, are indeed
warning about the potential “bias” introduced by some algorithms and they
recommend that every public agency that employs automated decision systems should
carry out what they call “Algorithmic Impact Assessments”, in order to evaluate their
potential bias level and allow public stakeholders and external auditors to examine it.
Due to the nature of tax regs, if we are smart in the way we structure the reg code, we
can greatly increase the algorithms’ objectivity.
In addition, in the tax eld, we can use some of the theoretical attributes of underlying
blockchain technology, like the immutable transaction record and the capacity to in-
brick logic into the system, to our bene t.
https://lawahead.ie.edu/embedding-a-i-and-block-chain-in-the-next-generation-digitalized-economy-tax-policy-design/ 6/9
12/16/2018 Embedding A.I. and block-chain in Digitalized Economy Tax policy design
The issue of the algorithm’s solvency and bias is a separate topic in itself, but perhaps
we need to seek out the solution in the consensus process ruling the smart contract
that governs the execution of speci c tax regulation segments, where voluntary
taxpayers and tax administrations joined the regulation execution network on an
automated basis—that’s why it’s absolutely necessary to simplify international tax
principles and regulations rst.
By introducing blockchain into the tax policy production process equation, other
questions around best public-private collaboration strategies arise. As in other elds,
we can envision several initial blockchain nimble use cases to begin testing, but it’s
paramount to de ne the right strategy and priorities beforehand.
I don’t think we can support the whole new tax-coded regs through blockchain; we
should instead begin by working on the critical parts that DLT tech contributes.
Most of the disruption in this distributed ledger arena comes from the startup level of
the ecosystem, but the business model around a technology that could be used/ruled
by a public body and by companies or individuals will likely need more than a public-
private partnership code of conduct. We must rst de ne open-collaboration initiatives
and grant them funding, with full stakeholder involvement.
Conclusion
There are two main emerging digital elements that led to the rise of the digital
economy between 2005 and 2018, and that generated heated discussions around the
BEPS Action 1, which the EU participates in with rm determination. They are AI,
which is becoming a reality, and blockchain, which is now working in our favor as the
basis a new way of producing international tax regulations supporting a highly
principled and more nimble tax policy design.
sovereignty. That’s why we need to de ne a minimum set of system logic rules we can
use to automate the execution of certain parts of the international economy tax system
on a controlled basis, through some tax regulation segments being transformed into
software code and matching the dynamism of the digital economy.
For that, all countries will need to render a piece of that sovereignty in favor or a more
elevated objective. Otherwise, the system will collapse at a point.
For this to happen, all countries will need to surrender a degree of autonomy in favor of
a higher objective. Otherwise, the system will collapse at a point.
Our new role should be to embed the core logic and control the parameters that go
into the international tax system affecting the digital economy from the foundation of
the process. And to do so, we need a master plan soon.
Note: The views expressed by the author of this paper are completely personal and do not represent the
position of any af liated institution.
[1] Marta Poblet-Pompeu Casanovas and others: ”Arti cial Inteligence Approaches to the complexity of
legal systems (Springer, 2009)”.
[2] See: “Algorithms, Performativity and Governability”; Lucas D. Introna, Lancaster University.
See also www.governingalgorithms.org
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