Big Data And The Seismic Shift Happening In The Tax Sector

Data is generated, stored, and made available today like it has never been before. Gradually, data has become big data, typically characterised as being high volume, high velocity, and high variety.

Data analytics, i.e. where technology meets data, has largely been considered and recognised as a value-creating element in a wide spectrum of sectors, starting with science and healthcare, and continuing with business and finance. However, the relevance of data analytics to the tax function, and more specifically to indirect taxes, is often neglected.

Tax authorities go big... data

Tax authorities around the world are increasingly employing data analytics to increase the efficiency of their tax collection and tax audit systems and processes, especially in the area of indirect taxes which are often the states' largest or second largest source of income. In some cases, tax authorities have been using innovative technical solutions to implement sophisticated fraud detection strategies using socio-demographic data and taxpayers' behaviour predictive analytics.

Initiatives by the OECD and the European Commission have led to an unprecedented mutual commitment of states to exchange information automatically or on request. Electronic filing of tax returns is now a legal requirement in most developed and developing countries. The tax authorities' digitalisation is far more complex than the e-filling of tax returns, however. With big data and innovative technological solutions, tax authorities can perform tax data analyses and calculate risk profiles—in some cases in real-time. This translates into better targeted and more detailed tax audits, as well as increased compliance by the taxpayers and a reduction in fraud.

We see this evolution in tax authorities' requests for more [electronic] data. In Luxembourg, the FAIA file, for example, has required certain taxable persons to automatically generate a standardised audit file containing all the information required for the authorities to audit VAT returns.

By carrying out automated and systematic detailed checks on a large amount of data, they have increased the quality of their controls and the efficiency of their resource use, while streamlining the process. For the taxable person, this automated audit also provides for a greater level of impartially and fairness as the audit is, to some extent, uniform.

Like taxer, like taxed

For businesses, the digital evolution of the tax authorities raises mirrored...