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Opinion Statement TTC 1/2020 on Tax Administration Data Collection Practices and Digitalisation of Tax Administration Processes

From IAFEI October 2020 Quarterly Bulletin

Prepared by the CFE Tax Technology Committee, submitted to the EU institutions on 30 June 2020.

The CFE Text technology committee was established in January 2018 in response to CFE's recognition of the importance of digitalization in the administration of taxes and the performance of the tax profession. It was and is accepted that digital transformation is and will henceforth be at the heart of all physical activity.

The evolutionary processes of digitalization are well underway. Revenue authorities are pursuing change in differing ways under the collective banner of Making Tax Digital. Unfortunately, there are no uniform standards and taxpayers and their advisers must operate eclectically depending on the authority to which they report.

We believe that the natural forces of globalization will act as a positive agent in coalescing overtime diverse systems and software. We see our role as primary participants with revenue administrations, software companies and tax advisors in driving this evolution since we accept the inevitability of the process. By our proactive, cooperative participation, we see our commitment as working for the continuous improvement of the process and the retention of the rights and responsibilities of all parties.

This, our first opinion statement, picks up on the OECD blog post on COVID-19. The post emphasizes: “Fighting a pandemic while minimizing the associated economic costs cause for appropriate digital infrastructure for the design and enforcement of containment measures, as well as to ensure access by the population and enterprises to critical government services.”

The post underlines the importance of delivering public services and collecting revenue and achieving progress in the digitalization process.

We agree with this statement.

CFE welcomes the opportunities for efficiency of tax administration that digitalization provides.

We are wholly focused on the role of tax professionals, managing the risks posed to taxpayers and administrators alike by the development of artificial intelligence, and exploiting the benefits of direct interaction between taxpayer and revenue authorities.

In particular, the Tax Technology Committee sees the following as vital issues to explore concerning information flow as part of digital transformation.

  • Maintaining the privacy of taxpayer data
  • The storage of data
  • Cybersecurity and the protection of personal data
  • Digitalization development resources - the availability of personnel and capital funding sufficient both for tax administrations and taxpayers
  • Administrative and investigative powers of tax administration
  • Data analytics, especially when subcontracted to the private sector.

Privacy concerns surrounding the digitalization of tax administration

The benefits to tax administrations of digitalization are clear: digitalization could increase rates of compliance, streamline and improve efficiency of collection and refund processes, and ideally improve taxpayer satisfaction in the process. It reduces risk of error by humans by reducing the number of instances of interaction. However, data protection rules often applied differently for revenue authorities and taxpayers, raising many issues concerning the privacy of data collection.

Digitalization of tax processes highlights the importance of personal data protection and privacy as we progress in this digital age. It is now that taxpayer rights need to be transposed and embedded in the digital world.

The Tax Technology Committee is of the view that, in these early days of the digital age, we need a clear code governing the development process, the uses to which technology is put and how taxpayer rights may be preserved in a digital environment.

Cross border sharing of data by tax administrations

concerns arise from the collection of data by tax administrations. They are compounded by automatic and requested data sharing between national tax administrations. The sharing of data threatens the expectation of privacy of a taxpayer, and raises issues concerning whether there should be some limits an oversight in the sharing of data.

The committee believes there is a need for a digital charter and a protocol for data protection in cross-border exchange. Security is an inherent aspect of any digital development worth considering and, currently, most taxpayers make disclosures subject to the expectation of privacy. We accept there are some states where public disclosure of taxpayer revenue occurs, but even in these countries, non disclosed information is private, and all taxpayers are aware of the extent of public disclosure.

Allowing access to or requiring disclosure to third party administrations of private and possibly privileged data without the consent of the owners of the data should only be possible if properly regulated. We think it is of vital importance that, where there is cross border exchange of information, participating revenue administrations adhere to a multilateral agreement which guarantees levels of data security equal to those applying in the state of data provision.

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