AI can help to find taxes in cash-first, evasive culture

| Press

Francesco Marconi, Andersen Partner and coordinator of the International Tax Division, comments in a Bloomberg article on the Italian government’s use of artificial intelligence to combat tax evasion. It is a strategy that begins to bring the first results, but it must contend with stringent European regulations to protect privacy.

Last summer, the Ministry of Economy and Finance authorized the Internal Revenue Service to launch the VeRa algorithm, which cross-references tax returns, earnings, property records, bank accounts, and electronic transactions to identify taxpayers at risk of non-payment. For this system to be effective, large datasets must comply with the General Data Protection Regulation (GDPR) published in 2016 in the Official Journal of the European Union. This regulation specifies that datas are allowed to be used only for purposes accepted by their owners but many exceptions are provided: authorized officials can process them for “public interest tasks” and to prevent and investigate crimes, which includes tax evasion. In addition, algorithms must be transparent, data anonymous, and inputs cannot be discriminatory. It mans that if a particularly problematic geographic area is identified, algorithms can not be programmed to monitor inputs exclusively from that region.

The Italian Guarantor for the protection of personal data, which monitors the implementation of the RGPD, has implemented its activities, taking decisive action against numerous companies. Initiatives implemented to curb the problem include mandatory electronic invoicing and a duty for all vendors to accept digital payments. Internationally, too, AI is increasingly used for tax monitoring, but few countries can rely on databases like the one available to Italy. It is an important starting point to heal the national situation, which is the most critical in Europe in terms of evasion: every year more than 99 billion euros are lost to tax invasion, and during the pandemic, the phenomenon has become even worse. Factors include high-income taxes, the habit of cash payments, and cultural tolerance of nonpayment of taxes, which accompanies the widespread feeling that state services do not live up to what is paid.

“Use of AI in tax administration is likely to continue, but fighting tax evasion does not seem a priority for the government”, said Marconi. Giorgia Meloni is more focused on on expanding the 15% “flat tax” for self-employed contractors earning less than 65,000 euros per year. “Especially at the beginning, I think their focus will be on increasing the flat tax threshold, creating a soft landing for anyone who exceeds it, and bringing more people into the system,”