26th November 2018
Here at 6CATS, we’re always observing the latest developments in tax and compliance in order to provide the best service possible to clients. This week, an interesting piece in Financier Worldwide, ‘The Future of Tax Technology’ reflected on how authorities are embracing digital technology in the fight against tax evasion. The piece mentioned existing software such as HMRC’s ‘Connect’, and emerging tax technology including Blockchain. As solutions like this become more readily available, tax collectors are seizing the opportunity to use them to prevent and detect fraud. HMRC estimates that tax evasion and tax avoidance costs the government £34 billion a year. With this amount of money at stake, it is no surprise that authorities are pulling out all the stops to reclaim lost funds. Agencies will therefore need to be more diligent than ever with compliance when placing contractors overseas.
The latest ways tax technology is being used worldwide:
Mentioned above, HMRC’s ‘Connect’ system is a great example of how big data is being used to hunt tax fraud. Launched in 2010, Connect sifts through enormous quantities of information — more data than the British Library — in its hunt for unpaid tax. It combines a variety of disparate information sources and detects previously invisible networks and connections to uncover tax evasion. The system automates analysis that would once have taken months, if it could have ever been done at all. Connect can also interface with over 60 other OECD countries globally, making it easier than ever to exchange information abroad. In its first four years of use, the tool enabled HMRC to reclaim an extra £4bn in tax from suspected tax avoidance.
Blockchain has the potential to transform tax collection. By making systems totally transparent, the integrity of a blockchain system would bring a new level of trust to tax collection, and radically simplify the job of authorities. One could potentially plug directly into the blockchain and gather tax with no hassle. It also offers financial incentives, reducing the massive administrative costs of collecting tax.
As we mentioned last week, social media is under increased scrutiny by tax authorities. In France, the government will begin searching social media accounts to investigate the general public. According to Gerald Darmanin, Minister of Action and Public Accounts, the tax man will be searching to see ‘if you have numerous pictures of yourself with a luxury car while you don’t have the means to own one. This is not isolated to France. In America, the IRS has gone as far as reading individuals private emails without a warrant. Even as far ashore as Australia, the Tax Office has employed ‘data doctors’ to develop models of ‘non-compliers’ so that programs can automatically track social channels for them.
AI and Robotics
The advent of Artificial Intelligence, or the ‘4th Industrial Revolution’, is set to be hugely influential in tax and compliance. A report from KPMG stated that ‘Robotics, automation and Artificial Intelligence will revolutionise the way tax technology operates.’ From a practical standpoint, AI will help automate the most routine and monotonous tasks related to tax collection. However, from a technical standpoint, the potential advances are huge. Types of machine learning such as ‘predictive modelling’ can be used to enable tax agencies to take all past fraud cases and create models based on common correlations. Other techniques such as ‘clustering’ , making a machine sort tax returns into groups that have similarities – ‘clusters’ – and identifying groups falling outside these clusters for additional investigation.
What does it mean for agencies?
With advances in technology showing no sign of slowing, tax authorities will be more effective at spotting discrepancies than ever before. Therefore, the chances of a small oversight or bit of carelessness meaning serious ramifications for your agency are higher than ever. The international tax and compliance landscape is already complicated place, and it is always changing. Staying on top of this is no mean feat. That’s why we recommend employing the services of an international contractor management expert to take care of things for you.
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