The modern economy has no room or sentiment in place for historic tax laws anymore. In general, when you look at the technological, political, social, and regulatory changes, tax legislation, authorities, and regulations are all struggling to keep up with the pace. In the past couple of decades, organizations have employed various complex tax arrangements, depriving revenue from governments.
The European Commission has released a report showing that the total ‘VAT Gap’ for nearly 30 EU countries was close to €200bn in 2021. That was blamed on the unique combinations of intentional misrepresentation of tax obligations, tax evasion, and fraud, either through deliberately falsifying or omitting revenue or income.
However, there are changes on the horizon, as governments have attempted to recoup most of the revenue they have missed due to fraud, avoidance, and non-collection. The levels of scrutiny now applied to tax collection have never been at a higher level, and that has meant that companies are now forced to pursue new ways for cost savings and increased transparency.
Tax authorities have assisted their efforts by embracing digital technology, which is used to interpret taxpayer trends and ensure companies are achieving better compliance with local legislation. Apart from that, tax authorities can also digitalize taxpayer data, which can be shared across multiple jurisdictions.
Tax authorities have seized the opportunity to detect and prevent crime as costs decline and more solutions become available, boosting operational efficiency and improving revenue collections. On the flip side, technology has helped companies cope with the increased demands from regulators for transparency. It has also improved efficiencies that are going to have an impact on how tax authorities are able to collect revenues in the future.
Technology Brings About Change
Tax authorities in Europe are increasingly relying on digital and technological tools to detect and combat tax evasion. Government agencies use a variety of methods, including data analytics, artificial intelligence (AI), and machine learning (ML), to identify potential cases of fraud and prosecute offenders.
Data analytics is used to examine large datasets for patterns that may indicate tax evasion. For example, tax authorities may compare income reported on tax forms with salary records from employers to detect discrepancies in reported income. AI and ML are used to automate the data analysis process by identifying suspicious behavior or trends that require further investigation.
Tax authorities also use digital technologies to make it easier for taxpayers to comply with their legal obligations. Online tax filing systems make it simpler for taxpayers to pay their taxes on time and reduce the risk of errors. In addition, digital tools can be used to track payments and ensure that all applicable taxes are paid in full.
European governments are also attempting to prevent tax evasion by making it harder for criminals to hide assets offshore or transfer money across borders. For example, the UK’s Controlled Money Laundering (CML) rules require banks to share information about their customers with authorities and impose an obligation on financial institutions to report suspicious transactions. Other countries are following this lead by introducing similar measures to combat illegal activity.
In essence, tax authorities in Europe are using a variety of digital and technological tools to detect, prevent, and prosecute tax evasion. Data analytics, AI, ML, online filing systems, and money laundering regulations are all helping to ensure that individuals and businesses comply with their legal obligations when it comes to taxes.
Analytics to Catch Tax Evaders in Europe
Tax evasion is a real problem being faced by tax authorities in Europe, who are now starting to rely on advanced and cutting-edge technology to deal with it. To showcase the potential of using technology to tackle tax evasion in Europe, here are some of the technologies you should know about:
1. Advanced Data Analytics:
Tax authorities are increasingly using advanced data analytics to detect suspicious activities such as tax evasion. This includes analyzing large amounts of financial and non-financial data from multiple sources, including bank statements, public records, and social media accounts. Data analytics can be used to identify patterns of behavior that may indicate attempts to evade taxes.
2. Automated Document Processing:
European tax authorities are increasingly using automated document processing to detect tax fraud and ensure compliance. This involves using software to automatically extract relevant data from documents such as invoices, bank statements, and other records. The data can then be used for further analysis or to trigger an audit.
3. Predictive Modeling:
Predictive modeling is another technique used by tax authorities to detect suspicious activities and uncover hidden risks associated with tax evasion. This involves using statistical models to identify correlations between different variables and develop predictions of future behavior.
4. Biometric Identification:
Tax authorities in Europe are increasingly making use of biometric identification technologies, such as facial recognition and fingerprint scanning, to authenticate taxpayers when filing taxes or requesting refunds. These technologies can help prevent fraudsters from impersonating legitimate taxpayers and ensure that individuals comply with their obligations under the law.
5. Real-Time Auditing:
Real-time auditing is a relatively new technology being used by tax authorities across Europe to detect fraudulent activities on a more proactive basis. This involves proactively monitoring taxpayers’ financial transactions in real-time and looking for any irregularities that may indicate attempts to evade taxes. This can help tax authorities catch tax evaders before they have a chance to hide their activities.
These technologies are helping tax authorities across Europe to tackle the problem of tax evasion and ensure that everyone pays their fair share of taxes. As such, it is important for all businesses and individuals to remain compliant with the latest regulations in order to avoid any potential penalties or sanctions. With these technologies in place, it will be increasingly difficult for those who attempt to evade taxes to go unnoticed by the authorities.
Tax evasion is a global phenomenon and remains one of the major challenges governments worldwide face. In order to address this challenge, tax authorities in Europe have adopted a range of technologies to detect and prevent tax evasion.
These measures include the use of advanced analytics, automated data analysis, AI-powered systems, and digital platforms that help to analyze large amounts of data efficiently and accurately. Additionally, these tax authorities are also creating partnerships with financial institutions in order to gain access to relevant information about their clients’ transactions.
These measures taken by European tax authorities have helped significantly improve the fight against tax evasion in Europe. However, there is still much more to be done in order to ensure that all taxpayers pay the correct amount of taxes they owe.
Governments around the world need to continue developing and implementing effective strategies in order to reduce tax avoidance and fraud. Additionally, it is also important that citizens are aware of their responsibilities when it comes to paying taxes so that everyone can contribute towards a fairer and more transparent taxation system.
By taking such steps, European countries can create new opportunities for economic growth, social justice, and financial transparency within their borders – promoting economic success across the continent as a whole.
Furthermore, these measures taken by tax authorities will also make sure that businesses have an even playing field, ensuring they pay their fair share and not taking advantage of loopholes or inconsistencies in the tax system.
Marc-Roger Gagné MAPP