Algorithms and “indirect” techniques in the fight against tax evasion

Algorithms and “indirect” techniques in the fight against tax evasion
Algorithms and “indirect” techniques in the fight against tax evasion

In the tax bill that will be submitted to the Parliament in the next few days, new cases are foreseen in which the income of businesses can be determined by indirect control methods.

With new techniques, which are already being applied, in countries like the USA, and the use of “smart” tools, the battle against tax evasion is expected to be waged, against the background of the new bill that has already been submitted for consultation and is expected to be passed before the end of the year state law.

“We are gone from the time when a taxpayer brought his papers to the tax office to be checked” said, speaking on Saturday morning in the Ant1 morning zone, the Governor of the Independent Public Revenue Authority (AADE) Giorgos Pitsilis, who also emphasized the importance and the complexity of the project to interface cashiers with POS and tax administration. ” The most difficult thing is to connect the POS with the cash registers. No country has done it quickly. It will take place in February 2024. There is a sense of tax evasion of 8-10 billion euros. Since 2017 there has been a gradual reduction”.

He completed, with a tip, the new bill for the fight against tax evasion, which, as he said, has a general admission thati “you cannot make less than what you pay your employee”that an effort is being made to update its tools.

Referring, in fact, indicatively, to delinquency phenomena in professional sectors, which “step” on new technologies, such as influencers, he emphasized that, now the AADE in its controls, with special algorithms and with “scanning” of the internet, intersections of living data, banking or other data, tries to identify tax evasion hotspots, going “beyond” the traditional review of the “books”, where of course the data is often “cooked”.

“With algorithms and a special team, we monitor the internet that monitors movements and advertisements,” emphasized Mr. Pitsilis. Against this background, he sent a message of tax compliance, saying characteristically that “a taxpayer who complies with his obligations can sleep peacefully” something particularly important.

It is recalled that based on what Mr. Pitsilis mentioned during the presentation of the new tax bill, there are already indirect control techniques in the “quiver”, i.e. IRS type auditswith which real income is calculated and “bells” ring.

“Indirect” techniques

It should be noted that in the tax bill that will be submitted to the Parliament in the next few days, four new cases are foreseen in which the income of businesses can be determined by indirect methods of control by the tax administration.

In particular, in the already existing cases provided for by the Income Tax Code, income will be determined using indirect techniques in the following cases:

  • when a loss is declared in at least three consecutive years and the method of financing the business, by which its obligations are covered, does not appear
  • when there is a significant mismatch between purchases, sales and inventories
  • when the gross profit ratio resulting from the declared results is different from that resulting from the purchase and sales documents
  • when the company does not provide information requested by the tax administration, after two invitations.

Essentially, with new tools, the Tax Administration can determine the taxable material and by applying one or more of the following control techniques:

a) the principle of proportionality,

b) the taxpayer’s liquidity analysis,

c) the net worth of the taxpayer,

d) the relationship of the sale price to the total volume of turnover and

e) the amount of bank deposits and cash expenses.

This process will reliably determine the actual gross profit margin, which, applied to the cost of services sold/provided, leads to the determination of business income.

Indirect techniques are used in those cases where the keeping of accounting records (books and data) or the drawing up of financial statements in accordance with the Accounting Standards Act is done in such a way that makes it impossible to carry out audit verifications or makes unreliable the accounting system.

According to the legislation, the indirect control techniques applied today are the following:

1. The principle of ratios: With this method, the income from business activity, the outflows and the taxable profits of the audited person are determined based on ratios and in particular, the gross profit margin.

2. The principle of taxpayer liquidity analysis: The technique determines taxable material by analyzing income (taxable and non-taxable), purchases and expenses (professional, individual and family) and increases and decreases in assets and liabilities (professional, individual and family) of the taxable natural person.

3. The principle of the net position of the taxpayer: This technique recreates the financial history of the taxpayer natural person and determines taxable material, taking into account all assets and available funds personal, family, professional, the various personal, family, professional requirements (assets), personal, family or professional obligations (liabilities), individual, family and professional expenses as well as income from other sources (individual and family).

4. The principle of the relationship between the selling price and the total volume of turnover: With this method, the income from business activity is determined by utilizing the relationship between the selling price and the total volume of turnover.

5. The principle of the amount of bank deposits and cash expenses: This technique determines taxable material by monitoring the movement of (available) funds of the taxpayer, his/her spouse and their protected members, either by depositing them in financial accounts or by spending them in various transactions using cash. It analyzes total financial account deposits, cash holdings, purchases, and cash expenditures at both the business and household level during the audited tax period and compares them to total reported income.

The feud is heating up

However, the whole issue with the occasion and the new “implied” way of taxing freelancers has fueled the political opposition, due, of course, to the fact that it concerns a very large “reservoir” of voters.

Thus, the message that his government is unyielding in the face of tax injustice and the fight against tax evasion was sent, through the weekly report of the government’s work, the Prime Minister, Kyriakos Mitsotakis.

Specifically, the prime minister spoke of an absolutely measured and balanced intervention, which “does not constitute additional taxation” and emphasized, with the obvious aim of social groups with significant tax “burdens”, that “the money from the detection of tax evasion will return to society for better health, more spending on education, more effective public safety and defense, more support for young families”.

The answer came from President of SYRIZA Stefanos Kasselakis with a comment on social media. In particular, Stefanos Kasselakis, highlighting the prime minister’s statement that “the money from the detection of tax evasion will return to society”, wrote: “Honest self-employed professionals who are called ‘tax evaders’ to pay an additional tax of 1444 euros regardless of their income, please let me know when they see the Mitsotakis government returning their efforts to society”.

From his side the Minister of National Economy and Finance Kostis Hatzidakis speaking on Sunday morning at the Open, he referred extensively to the taxation of freelancers, stressing that it is not possible for a pensioner to pay the same taxes as a freelancer, a phenomenon that has reached uncontrollable proportions in recent years.

“I don’t want to target specific professional groups, but for years we have been observing a phenomenon that I see in the statistics. 71% of freelancers report an income that is below the minimum wage. And I think that should concern us. 500,000 out of 735,000 freelancers declare income exclusively from self-employment. Of these, 85% are under 10,000 euros per year. With the application fee, freelancers pay 867 euros per year. The average employee pays 1,160 euros and the pensioner pays about the same as the freelancer” said Mr. Hatzidakis and added: “Obviously some have reason not to like our intervention. We are in a neighborhood where there are both salaried and retired and freelancers and you have a conversation. How much is it acceptable for a freelancer to pay so much less than an employee, who can have him in his work, and for the employer to appear poorer than the employee? Let’s think about this, how fair it is and how much our conscience allows us to look in one direction. Statistics came out today that 84% of bar owners declare an annual income of less than 10,000 euros” he emphasized and added:

“So far, the collections we have from taxation in Greece correspond to 0.8 of the GDP. The part term of the eurozone is 2.1. Almost triple. And with this intervention we will go to 1.1-1.2. Again we live in half of the eurozone. The contribution of the self-employed to the total tax revenue in Greece is 2.1% of the total and in the Eurozone it is 5.1%. You see that there is an issue of clear injustice”, pointed out Mr. Hatzidakis, who appeared open to improvements, as, e.g. already in the legal sector, where many young lawyers often do not exceed 700-800 euros in income per month and now face the specter of additional taxation.

In the meantime, the opinion that the Minister of National Economy and Finance Kostis Hatzidakis in essence does not want to fight tax evasion, Nikos Pappas, the responsible head of SYRIZA, said in a statement. “Instead of Mr. Hatzidakis announcing changes to his bill, let him withdraw his intention for horizontal taxation of freelancers. We are ready to discuss, with the participation of the competent bodies and representatives of professional groups, measures for tax evasion, which he himself, it seems, has no intention of fighting. More unfavorable forecasts for the economy and tax revenues are coming in the next period. It is obvious that the government of N.D. is going to cover the looming void with a tax on the righteous and the unrighteous”, noted Nikos Pappas in his statement, while the secretary of the KPE of PASOK-Movement for Change, Andreas Spyropoulos, speaking to “Open” noted that “all government officials, first of all the prime minister, said before the elections that with the New Democracy there would not be a single new tax increase. Not three months have passed and it is revealed that they were lying to the Greek people. They started with the extortions from the freelancers. Let’s see where they will go.”

The article is in Greek

Tags: Algorithms indirect techniques fight tax evasion


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