AI and Taxation: Risk Management in Fully Automated Taxation Procedures

ATL-Editor 31 July 2019

12 Pages Posted: 19 Dec 2018

Nadja Braun Binder

University of Zurich – Faculty of Law

Date Written: October 1, 2018

Abstract

On January 1, 2017, the Taxation Modernization Act entered into force in Germany. It includes regulations on fully automated taxation procedures. In order to uphold the principle of investigation in such fully automated procedures, a risk management system can be established by the tax authorities. The risk management system aims to detect risk-fraught cases, and thereby to prevent tax evasionTax Evasion refers to illegal activities or practices undertaken by individuals or businesses to avoid paying taxes. It involves intentionally misrepresenting or concealing income, inflating deductions, or underreporting earnings to reduce tax liability unlawfully. Unlike tax avoidance, which uses legal methods to minimize tax obligations, tax evasion is a criminal offence that carries significant penalties, including fines, imprisonment, and asset.... Cases identified as risk-fraught by the system need to be checked manually by the responsible tax official. Although the technical details of risk management systems are bound to secrecy, such systems are presumably based on artificial intelligence. If this is true, and especially if machine learning techniques, where algorithms self-optimize their programming in case of errors or false results, are involved, this could lead to legally relevant problems. Examples from outside tax lawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... show that fundamental errors may occur in systematic assessments. Accordingly, the greatest challenge of using artificial intelligence in risk management systems is their control.

Keywords: Artificial Intelligence, Taxation, Risk Management, Legal Provisions, Fully Automated Taxation Procedures, Germany

Suggested Citation:Braun Binder, Nadja, AI and Taxation: Risk Management in Fully Automated Taxation Procedures (October 1, 2018). Available at SSRN: https://ssrn.com/abstract=3293577 or http://dx.doi.org/10.2139/ssrn.3293577

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Nadja Braun Binder

Abstract

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