Case Study
Blockchain

​The Danish Customs and Tax Administration (SKAT) and Nets are collaborating on a proof of concept to ensure transparency and rightful ownership when buying and selling a used vehicle. The concept is meant to offer visibility throughout the life cycle management of a vehicle, from import to scrapping, to the benefit of both buyer, seller as well as to the tax authorities.

​Buying and selling a car is a matter of trust, not least when it comes to used vehicles. In Denmark, a three week period typically follows the transaction, during which the buyer and the seller would formerly settle the paperwork with their insurance companies and other parties, often by manual processes and traditional mail – a legacy of an analogue era.

 

During this time, the seller is registered as the legal owner or user of the car until the buyer has notified the motor vehicle registration authorities, and is thus potentially exposed to parking tickets, speeding fines etc. In a few instances, the buyer, unbeknownst to the seller, never notifies the authorities of the change of ownership.

 

To close the gap and harvest the benefits of transparency and thus accountability, the Danish Customs and Tax Administration (SKAT) and Nets are currently co-creating a proof of concept that will shift the process of registering car ownership onto a blockchain-based setup.

 

A blockchain-based concept could give SKAT and many other stakeholders a full overview of the life cycle of the vehicle, from the moment of import right through to decommissioning – when VAT and duties are initially paid at licensing and registration, until it is sold from a car dealership – every step of the way, the tax authorities would know be able to identify the rightful owner of the vehicle.

 

"We're excited to familiarise ourselves with this intriguing new technology with Nets and to benefit from the know-how they have from their lab. Though still very early days, the purpose of the project is to identify its business case by applying blockchain technology on one of our key processes and to develop a prototype for registration of vehicles," says Jane Eriksson Dahl, Head of Innovation and IT-development, the Danish Customs and Tax Administration (SKAT), adding, that as one of the world's most digitised tax authorities, SKAT is continuously looking into new technologies.

 

Full life cycle management and no pig in the poke

The blockchain-based prototype, while covering only part of the car life cycle, demonstrates the ability to potentially record all documents associated with licensing and registering a car and selling it on. In addition to offering full transparency, the logged documents could have an interdependent effect, releasing the payment to the seller once the car has been registered in the name of the buyer. The solution could in other words encompass Smart Contract features with self-executing attributes.

 

Storing all relevant documents in an open ledger, paired with cloud-based technology, enables several parties to access the data which could lead to highly efficient automated processes. This would make it possible to eventually add yet another layer of activities related to the lifecycle management of the car and registering the related documentation such as registration tax, green taxes, a notice to take the MOT test to renew certificates, a list of licensed garages performing MOT, etc. 

 

“Trust can be an issue when dealing in second-hand cars. By using blockchain technology, the authorities will eventually gain a complete overview of assets on the road at any point in time - who owns the car, its attributes, when it was imported, along with a record of previous ownership, missed MOT tests, and any related issues such as outstanding speeding fines, parking tickets, illegal use of the car for committing criminal offense etc. This kind of overview could have significant societal benefits,” Simon Buchwaldt-Nissen, Director - Corporate Strategy at Nets, points out. 

 

For the owner of a car, it could further be an advantage to know the full history of the vehicle and be certain there are no unresolved issues or claims related to it. Any accidents or subsequent repair by a registered garage could potentially be on the record as could the car's mileage, making evident any discrepancy between the mileage recorder and the data entered into the ledger.

 

If a car was involved in a collision, it could be enlisted in the blockchain that an approved garage must be used for the repair and body work, and the transparency would also make it easier for insurance companies to assess the right premium:

 

"With this technology, you could imagine that, down the line, third-party providers could easily tap into the process to offer value-added services such as servicing or dent repair after an accident and so on. This way, the ledger could also allow a full overview of the service history of the car, assuring the new owner that service intervals are respected, and that e.g. only licensed garages have serviced the car throughout its life cycle," explains Simon Buchwaldt-Nissen.

 

Blockchain is a social technology

"Blockchain technology is designed for multiple parties to share and interact with collective data. This offers both a wide range of possibilities but also limitations for an authority like SKAT. There are many considerations we are forced to take into account, before embarking into this new universe – which is why testing it in a sealed off data environment is very beneficial," says Jane Eriksson Dahl.

 

Taking the proof of concept even further could entail allowing third-parties access; a setup based on cloud should ideally resemble what is known from existing applications, but with an underlying blockchain technology and the affordances thereof. In such a case, for staff at a garage, entering data for instance, would be no different from other administrative work they know today.

 

The current proof of concept derives a few aspects from principles developed in Nets' first blockchain-based proof of concept, "Buying and Selling a House", developed in Nets' Blockchain Lab during the last year.

 

"We are excited to be co-creating with SKAT and employ the know-how we have acquired in our blockchain lab, to address a real challenge which could potentially make a difference for many stakeholders," concludes Simon Buchwaldt-Nissen.

"With this technology, you could imagine that, down the line, third-party providers could easily tap into the process to offer value-added services such as servicing or dent repair after an accident and so on. This way, the ledger could also allow a full overview of the service history of the car, assuring the new owner that service intervals are respected, and that e.g. only licensed garages have serviced the car throughout its life cycle"

Simon Buchwaldt-Nissen, Director - Corporate Strategy at Nets