Rules-based AI refers to expert systems, self-executing law, and computable codes. Analyzing Business ProcessesĪI can be categorized into two orientations-data-driven and rules-based.ĭata-driven AI uses prediction models, natural language processing, visual law, and network analytics to compute tax laws. Therefore, information gathering, risk management, and supporting systems are the focus of tax administration compliance. This categorization is an important issue regarding the question of how EU member states should structure their legislation regulating AI algorithm applications to achieve the necessary balance of rights and obligations between taxpayers and tax authorities.įor instance, the use of chatbots based on AI algorithms by tax authorities probably wouldn’t pose the threat of limitation of taxpayers’ rights, as practical exploitation of the function of assisting taxpayers wouldn’t infringe their rights or obligations. The risk management algorithms are used to predict tax risks or non-compliance with obligations. Anomaly detection uses AI algorithms to perform checking of unusual discrepancies between reported (or unreported) data and the available information. The European Commission employed transmission network analyzer in 2019 as a tool to help combat value-added tax fraud. Social network analysis, transmission network analyzer, and anomaly detection are tools applied. The third category of AI algorithms is used to automate tax risk-detection functions.Data obtained is matched afterwards with data already stored in databases of the tax administration. These are tools such as web crawlers or web-scraping systems that are used to collect taxpayer data from webpages, social media, e-commerce, or e-sharing platforms. The second category of AI algorithms performs automated data collection functions.With natural language processing, the chatbot recognizes keywords and uses decision trees linked to frequently asked questions to give feedback to the taxpayer’s query. Usually, such a system uses natural language processing to conduct a textual online conversation and answer taxpayer queries, substituting for human tax officers. The first group of AI algorithms performs a function of taxpayer assistance.Solutions Based on AI Technologyĭue to the increasing requirements for tax compliance transparency, for example new regulations such as the OECD’s BEPS 1.0 and 2.0 and the EU’s Anti-Tax Avoidance Directive and Directive on Administrative Cooperation, most tax administrations in the EU have started using solutions based on AI technology, and in three key ways: Companies aim to optimize their process costs and minimize their tax burden, as long as it aligns with tax compliance principles.Īrtificial intelligence techniques such as machine learning and process mining can automate various tax compliance tasks. The goal is to achieve accurate tax compliance at the lowest possible cost while avoiding artificial and aggressive tax planning. These elements are interconnected and involve both tax authorities and taxpayers. It omits communication, training, risk management, and the economic benefits of compliance. This definition by ChatGPT 4.0 covers many, but not all, aspects of tax compliance, which is more than just how tax laws are applied. It includes calculating and paying taxes accurately and promptly, maintaining records, and submitting necessary tax forms to the appropriate tax authorities.” “Tax compliance means adhering to government rules and regulations for paying and reporting taxes.
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