Tax Authorities Using AI to Catch Remote Workers

We did a social media post a few weeks ago on April Fool’s Day about how the German tax authorities had announced a fictitious additional 15% “nomad beach tax” for remote workers spending more than 90 days abroad.

It was all quite light-hearted until a few days later, a number of people sent us a link to this article published by Business Insider about how New York and other states are using AI to track down remote workers who are avoiding taxes.

Despite having lower audit staff, the state Department of Taxation and Finance announced that there were 771,000 audits in New York in 2022 which was a 56% increase from the previous year.

The reason behind the increase in audits, despite lower staff?

Artificial Intelligence.

 

Is that Selfie Worth it?

By analyzing vast troves of data, including social media posts, credit card transactions, and other digital footprints, many tax authorities around the world are exploring how these AI systems can pinpoint individuals who maintain ties to high-tax jurisdictions despite claiming residence in tax-favorable jurisdictions.

This is something to remember the next time you post that social media post with a picture of you working remotely in Germany and how transformative your 6 month workation there was.

 

Tax Authorities Shifting Focus to Work From Anywhere

The examples we will go through in this article underpin a broader trend where tax authorities are adapting to the evolving nature of work. 

As work from anywhere becomes increasingly prevalent, tax agencies are confronting new challenges in determining individuals’ tax liabilities, particularly when residency and employment cross state or national borders.

 

Tax Authorities Upping their Game when it Comes to Leveraging AI

Post-Covid, many of us witnessed the acceleration of technology and digitalisation across all aspects of our lives.

E-commerce penetration increased markedly.

The use of digital tools helped boost remote work.

Did you ever wonder how tax authorities themselves were looking at digitalisation?

Especially with much more of our work and personal lives digitised, it became a no-brainer for many tax authorities to consider using many of these tools we use in our day to day lives.

 

AI in Tax Risk Assessment: The France Example

 

 

In 2023, tax authorities in France used AI to discover more than 120,000 undeclared swimming pools.  La Direction générale des finances publiques (DGFiP) deployed AI in partnership with Google (using Google Earth) and Capgemeni to radically increase tax evasion detection.

The software used aerial shots from l’Institut national de l’information géographique et forestière (IGN) to compare what is on the ground with the current records.

The views were then checked by DGPiF agents and AI, and any discrepancies (such as a pool that was not there before) would be investigated.

The tax office estimated it would recover €40m-€50m in unpaid taxes via this approach.

 

AI in Tax Practice: The Italian Angle

In 2022, the Italian Revenue Agency introduced a new AI algorithm, called VeRa (Verification of Financial Reports), to identify taxpayer anomalies and to improve tax evasion detection for tax offices.  The VeRa Algorithm is able to compare the value of income, accounts, and electronic payments with the actual tax filing to then identify higher risk tax payers.

That same year the agency identified 1 million high-risk cases and prevented more than 6.8 billion euros ($6.85 billion) in fraud, the tax authority said.

“In the last few years, the use of technology and digitization has proven to be a real game changer,” said Paolo Valerio Barbantini, deputy director general and head of the taxpayers division of the Italian Revenue Agency.  

 

EU Electronic Borders: Risks Elevated?

Under the new ETIAS system in Europe (similar to the US ESTA system), starting from 2025, around 1.4 billion people from over 60 visa-exempt countries are required to have a travel authorisation to enter most European countries.

This will bring a much tighter digital footprint into play for these 1.4 billion people who visit Europe.

Similar to the French swimming pool example, is it only a matter of time before tax authorities and immigration authorities leverage a much broader digital footprint (such as ETIAS above) and AI to target remote workers in a much more surgical way?  

Only time will tell but this does elevate the detection risks if someone is evading taxes.

 

AI Will Continue to Evolve how Tax Authorities Combat Tax Evasion

The global trend toward AI-driven tax enforcement reflects a fundamental shift in the way governments approach tax compliance in the digital age. As technology continues to evolve and reshape the landscape of work and finance, tax authorities are harnessing AI as a force multiplier in their efforts to uphold tax integrity and fairness. While these developments may raise concerns about privacy and surveillance, they also underscore the importance of having the right technology in place in-house when it comes to taxation.

In conclusion, the convergence of AI and tax enforcement represents a major shift in the way governments combat tax evasion and ensure compliance. From New York to Paris, and beyond, tax authorities are harnessing the power of AI to identify and deter individuals who seek to evade their tax obligations. 

As technology continues to evolve, so too will the tools and methods employed in the pursuit of tax integrity, shaping the future of taxation in an increasingly interconnected world.

Fun Fact

Did you know our Work From Anywhere compliance engine takes into account the level of digitalisation of taxation and immigration authorities?  We have hundreds of thousands of different data points in our global tax engine that is used by small companies and Fortune 500 companies alike.  Feel free to reach out to us directly for more information.

 

John Lee Co-founder Work From Anywhere

John Lee

John is Co-founder of Work From Anywhere, a platform to help companies execute a work from anywhere strategy.  John is a Chartered Accountant who speaks 6 languages and was previously the senior finance leader of a €4 billion division of FTSE-listed CRH Plc.  John and his family are passionate about travelling and his eldest daughter, Rosa, while only 5 years old has already travelled to 25 different countries.

 

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