State of use of AI tax systems
According to the Austrian Federal Ministry of Finance, the Austrian tax administration has been making use of machine-learning algorithms since at least 2014, after the creation of the Predictive Analysis Competence Centre (PACC).
The PACC is a special unit of the Ministry of Finance responsible for the design and management of a modern risk management structure. The PACC is charged with increasing the efficiency of tax collection, auditing and fraud detection.
The PACC is divided into four subject areas: Predictive Analytics, Advanced Analytics, Tax Analytics and Customs Analytics.
What functions are performed with AI?
Reports of the Federal Ministry of Finance are particularly vague about the specific functions performed by the machine-learning algorithms. Nonetheless, public documentation mentions at least four specific functions:
1. Webscraping: sources indicate that the Austrian Tax Administration makes use of open-source webscraping tools to automatically collect data from online websites, commercial platforms, social media and e-sharing/gig economy platform. Prior to open-source tools, the Austrian Tax Administration made use of XENON, similarly to Denmark, the Netherlands, Sweden and the UK.
2. Risk-management systems (risk-scoring): The tool creates risk profiles to segment individual taxpayers into categories of risks and operate a centralised selection of taxpayers to be audited. The risk-scoring system is based on a supervised learning algorithm that infers the risk-indicators composing each statistical models generated. The 2018 Report of the PACC outline that the risk-scoring system and case selection tools that compose the annual audit plans have been developed with SAS software.
2. Real-time risk detection: these systems identify suspicious taxpayers or transactions and flags those for potential further audits. The PACC has implemented real-time detection systems to pre-evaluate start-ups and identify entrepreneurs with a higher risk of tax evasion. Real-time detection is also used to detect and prevent missing-trader and carousel fraud in the area of VAT.
3. Taxpayer assistance: Since 2019, the Federal tax administrations has deployed a chatbot ‘Fred’ integrated in the public tax platform FinanzOnline. Fred provides assistance on a range of tax-related matters, focusing particularly on natural persons. The Finance Ministry reports that since 2019 Fred has answered 3.5 million questions, with a reported 70% satisfaction rate from taxpayers.
Reports of IOTA make incidental mentions of so-called ‘nudging tools‘, similarly to the Belgian, Danish and Polish tax administration. These systems adapt the language used on standard communication to taxpayers based on taxpayer historical data and underlying risk profiling. Concretely, it means that taxpayers may receive different types of communication based on underlying profiling and risk scores. For instance, notoriously non-compliant taxpayers might receive letters with a personalized ‘stronger’ language. Nudging tools may also be used to target specific segments of the population, to add specific text, such as the possibility to receive assistance from the administration for vulnerable populations.
What data can be processed by these systems?
The Federal Finance Ministry outline that the PACC has access to a wide range of data to train machine-learning systems.
The PACC has a specially developed database at its disposal for its analysis. It includes all the tax subjects of business assessments with the basic data, data from tax returns, tax assessment notices, VAT advance notifications and data from the implemented auditing measures. Commercial register data are also incorporated.
Are these systems regulated by specific norms?
Section 4, §114 (3) of the Federal Tax Code (Bundesabgabenordnung – BAO) provides that the Austrian tax administration and its agents may record documents using automated data processing, without presumption that such recording method affects the evidential value of the documents.
Section 4, §114 (4) BAO prescribes that the Austrian tax administration and its agents may process personal and non-personal data for the purpose of automated risk management and fraud prevention, insofar as such use complies with proportionality.
Section 1, §48d (1) & (2) BAO authorizes the Austrian tax administration and its agents to process taxpayer personal data, including sensitive data in certain circumstances, through fully and partially automated processing, for the purpose of tax collection.
