Let me introduce you to the 5 trends in Tax Administrations that Shaun Barry presented at the “Tax Summit in Madrid” last October.
- What does Smart Cloud mean?
- Data Strategies are on the rise
- OSINT - Open Source Intelligence
- The Rise of Cryptocurrency
My job today is to present to you the trends that our customers, our team and I see not only in Europe but around the world in tax administrations, and which were presented at the last "Tax summit" organized by SAS for its customers in Madrid on October 13 and 14, which I had the privilege of attending, and from which I bring back some important elements.
So the first trend: What does the intelligent cloud mean?
I would say that under the guise of the sovereignty topic, there are three to be smart on the cloud the first one gravity, then security and collaboration.
Gravity - Data Flows
Analytics needs to be done near the data, which is often referred to as data gravity.
These flows - the data supply chain - drive costs both for cloud providers (typically for data transfers out of the cloud) and in terms of performance (network and compute) on large data sets and/or complex computations.
The challenge is not the location of the data but the flow of data from one place to another.
Thus, the cloud is not always the cheapest approach.
So it's critical to understand the flow of data to ensure that transfer costs don't outweigh the savings in compute and storage costs.
For example in the UK today, the administration is implementing a very innovative program called "Real Time Tax Administration" as you enter your tax return online and agents or even a robot assess in real time, whether you are compliant or not, and they provide you with feedback "hey you're sure you're declaring £10,000, but we think you're making £15,000" It's this real-time analysis very close to where the data is entered = where the data lives, so it's a good illustration of this concept of data gravity.
Security needs to be understood by making sure that administrations only store the right types of data in a public cloud - especially the most sensitive data that you may never put in a public cloud, you may want to have a different strategy depending on the data and have a hybrid cloud strategy when it comes to security especially that sensitive information.
Collaboration is the idea of how to share algorithms how to share data how can you use the same software and computing platforms in different cloud environments where do you need or don't need to share that information.
These three components have the idea of being smart in the cloud.
Trend #2: Security
It's not possible for a tax agency to spend too much time and resources on security.
So, what are the main challenges faced?
There is reputational risk if you get hacked, there is financial risk if hackers break in and steal taxpayer information which then provides a treasure trove of information to identity thieves to sell their information on the dark web.
So what to do to fight back, so that there is clearly a trend to invest in insider threats first - There are many different ways to counter these insider threats.
Also in terms of intrusion detection, it's people outside of your tax agency that are trying to hack into the systems. Investing in data and technology to detect and prevent these thefts can prevent nasty surprises.
An example: South Carolina, USA
About 10 years ago, South Carolina experienced a massive data breach through a phishing attack by an employee who simply clicked on a link, the hackers went in and stole the data of 6.4 million businesses and citizens.
They took 387,000 credit card numbers and the state of South Carolina through the Department of Revenue had to pay 10 years later more than $20 million to its taxpayers to provide services to them when they had identity theft issues because of this data breach.
That's a huge problem and you can see those headlines in the news still today.
These types of security breaches are massive, it has a very big impact on people's lives.
Trend #3: Data strategies are on the rise
Tax agencies are spending time hiring Chief Data Officers (CDOs), who have developed strategies on how to collect data, how to manage data, and how to control data.
So, what is the difference between an IT strategy and a data strategy?
IT strategy defines tools, platforms, internal development, priorities, outsourcing, applications. Applications only collect, but data is the most valuable part of what every tax agency has.
The data strategy defines the data priorities that support the business priorities
So, what are the components of a data strategy?
You can see the five components
- Identify: Provide the ability to identify data and understand its meaning regardless of its structure, origin or location: what data are you collecting or should you be collecting?
- Provide: Enable data to be packaged and made available while adhering to all access rules and security for your taxpayer service representatives
- Store: persistent data in a structure and location that supports access and processing across all branches of government.
- Integrate: To provide a unified view of the data: how can I store and manage the integrated ingredients together so that all the information for a single taxpayer can be easily viewed,
- Govern: And then you have to govern the data, who has access to it, how long do you keep the history, put in place policies and reporting mechanisms to ensure effective use of the data.
So you have to address these elements.
Trend #4: is Open-Source Intelligence - OSINT is the acronym.
Open Source Intelligence, is not just about collecting taxpayer data from time to time, it is the new normal.
Tax agencies must be able to administer it well, actively manage it and collect information well.
So, how do we define OSINT, or open-source intelligence?
Example: If you go to Airbnb or any of these types of websites offering apartments or houses for rent, you can see publicly what the price of a particular property is, you can see the contact information, contact the property manager, check the dates that are open, anyone can access that data, you don't have to log in with a password, to a website, that's public information generally considered as OSINT.
On the other hand, Facebook, if you need to log into a Facebook account that requires some type of firewall or signature or signing process that is not naturally publicly available information so in general it's not OSINT.
Another case is you attend a conference and if that conference publishes a list of attendees, that is public information that can be used as OSINT.
So if a European tax agency does not want to reveal its name, it gets a total non-reporting rate of about 30% for vacation rentals through OSINT.
Traditionally, tax agencies have not seen open-source intelligence as a strategic part of what they do - now they have accepted it.
Trend #5: It should come as no surprise to anyone, it's the rise of crypto currency
Crypto is starting to be used more and more to purchase goods and services that may have an income tax liability or a VAT liability especially for cross-border transactions.
Crypto is increasingly being used to move money surreptitiously from high tax jurisdictions to low or no tax jurisdictions, this amounts to tax evasion.
Criminal investigation teams in their tax agencies are concerned, crypto is clearly used in crimes other than financial and there are often major crimes associated with it, whether it's drug trafficking, child sexual abuse, other types of deviant behavior that we see, that's why crypto currency is important to tax authorities.
Example of the IRS in the US, - their criminal investigation division last year, seized 3.5 billion crypto-currencies over the course of the year. That's significant and I think it shows some of the relevance of crypto currencies to tax agencies.
Regulators need to be able to catch up and learn more about blockchain and how it's being used and how tax agencies can make sure they enforce compliance including on crypto currencies.
The latest trend is that Crypto currencies, will continue to be adopted.
In summary I would say that States share the same issues and administrations often respond differently depending on their culture, on their history, on their strengths.
If you'd like to read the article in French, click here!