By Jérôme Duperrut
– Associate Director – Economic Analysis & International Institutions – SICPA

Taxation is a key attribute of the state and relies on the collection of sensitive data on its inhabitants’ income, wealth, profit, pension, subsidies, etc. This collection of tax data needs to be done in a trustful manner by the tax authority to ensure taxpayers’ willingness to comply with legislation. One example where the collection of trusted data is key is in the context of the international exchange of tax information.

The tax data collected in country A has to be exchanged with country B according to international standards on tax transparency, including the automatic exchange of financial account information for tax purposes (AEOI). Countries participating in the AEOI have to comply with legal obligations, administrative processes and technology tools to ensure that taxpayers contribute their fair share to the correct jurisdictions.

In the context of the AEOI, digital technologies are useful at all stages of the process:

  • the collection and relay of information from financial institutions to the tax authority in country A,
  • the handling of information received by the tax authority, including data confidentiality,
  • the transfer of tax data from country A to country B,
  • and the effective use of tax information received in country B.

The breach of tax data at the National Revenue Agency of Bulgaria – a participating member of the AEOI – in July 2019 highlights the need for secure digital technologies. Beyond basic technologies, such as databases, cybersecurity, and cloud computing, which proved unsatisfactory in the case of Bulgaria, other technologies are needed and should be combined to ensure an appropriate level of trust. These other digital technologies include digital identity, process integrity, artificial intelligence, and blockchain. Blockchain acts as the trust anchor, in particular thanks to its immutability. In conclusion, digital technologies are welcome ingredients to enable trust in international taxation.