Artificial Intelligence In Brazil Tax Authority

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Tax Administrations (TAs) are increasingly using artificial intelligence (AI) in their various functions to be more efficient and effective in their work, as reported in Tax Administration 2023.

Among the functions of the Tax Administrations, the use of AI in inspection stands out, as is the case in Brazil, where this technology has begun to be used. In this country, innovative AI-based technology was developed that is capable of expanding the detection of tax and customs fraud and illegalities, as summarized below [1].

1. TRENDS IN USE OF AI IN TAX ADMINISTRATIONS

The OECD Tax Administration Series report “Tax Administration 2023” provides internationally comparative data on aspects of tax systems and their administration in 58 advanced and emerging economies.[2]

Its aim is to inform and inspire tax administrations as they consider their future operations, as well as to provide insights into global tax administration (TA) trends and performance for stakeholders and policy makers.

With the participation of 58 jurisdictions representing together around 90% of global GDP, the Tax Administration 2023 report provides a comprehensive overview of the state of TA in 2021. Among many other topics of great interest, it presents trends in the use of AI by tax authorities.

For example, it is said that more than 60% of the Tax Administrations offer virtual or digital assistants to help answer taxpayers' queries and support self-service, a change of almost 30 percentage points compared to 2018.

Elsewhere in the report, it is said that “the sophisticated use and manipulation of data has driven a significant increase in the use of analytical tools and techniques to improve risk management and assist in designing for compliance.”

Nearly 95% of TAs report using data science and analytics tools to manipulate electronic data from third parties, including other TAs, as well as internally generated electronic data to guide their compliance work. This is an increase of more than 20 percentage points compared to 2018.

Additionally, 54.4 percent of the Tax Administrations are using AI and machine learning in their tax management, and 50 percent have applied robotic process automation, with increases of more than 22% from 2018 to 2021 .

Elsewhere in the report it says that “More than 80% of the TAs report that they are using or are in the implementation phase for the future use of cutting-edge techniques to exploit data in ways that reduce the need for human intervention. Although generally still in an early stage, AI and machine learning are already generating efficiencies, freeing up resources to deploy in other areas.”

2. AI USES IN INSPECTION IN BRAZIL

The new technology, which is being developed internally by the Federal Treasury as part of the Analytics Project , has been in use for some time and has yielded significant results in several areas of tax administration.

Created by auditors and tax analysts, the platform uses AI algorithms and complex network analysis to improve the analysis of tax data and provide a significant increase in the ability to detect fraud and illegalities, as well as offering greater security when making decisions and increasing the productivity of tax actions. The opportunities for applying this technology are diverse and, judging by the results already obtained, should grow even further.

Some examples of detected tax evasion are listed below.

2.1. IMPORTATION AND USE OF ECONOMIC GROUPS

The platform that allows for the processing of complex structures of economic groups and business networks, facilitating the identification of suspicious patterns that, after evaluation by experts in taxpayer selection, are transferred for in-depth analysis by tax auditors. There are ongoing cases and closed inspections resulting from the use of this module.

This and other modules are also used in the primary area, allowing us to check for signs of fraud based on the relationships between importing companies.

2.2. USE OF CRYPTOCURRENCIES

The combination of different techniques, incorporated into the Analytics Project platform , has been relevant in identifying suspicious transactions and signs of complex tax evasion and money laundering schemes using cryptocurrencies.

In one case, using this technology, tax authorities identified a possible R$ 700 million scheme moved by shell companies for the purchase of cryptocurrencies. International import and remittance operations were identified with strong indications of tax irregularities and the commission of other crimes.

In another case, detected thanks to the use of the platform, it was possible to verify a tax evasion scheme, which also involved money laundering for drug and arms trafficking, in which more than R$ 350 million were moved.

The two cases mentioned are being investigated by the Federal Treasury, in collaboration with other agencies.

Using the crypto module, tax auditors have visually identified notary companies ( basically created to issue tax documents, without selling goods or providing services, with the aim of evading taxes or offsetting taxes unduly ) and operational beneficiaries, analyzing the flow of different types of virtual currency transactions.

2.3. RETURN REQUESTS.

A dashboard was recently created on the platform to assist in the screening and analysis of refund requests and compensation claims, with a view to identifying signs of inconsistencies and fraud.

The initial investigation led to the selection of some companies with suspicious values that together amounted to around R$ 11 billion.

The dashboard makes it easier to identify fraud by presenting up-to-date, easy-to-understand and fully interactive graphics, which reduces the selection and analysis time needed to work on a specific case.

2.4. THE SYSTEM ALSO HELPS IN THE CORRECT DECLARATION OF OPERATIONS.

Processing that combines artificial intelligence techniques and traditional methods also supports the Brazilian AT's communication aimed at encouraging voluntary compliance.[3]

In the context of the search for distortions in income statements in the calculation of Real Profit, a team monitoring large taxpayers used the platform, identified a specific case of possible misappropriation of tax losses of relevant value, alerted the company, which then rectified the information, generating additional revenues of millions of reais.

As we can see, it is an action without the need to open a tax procedure, without the initiation of litigation.

The system also facilitates communication with taxpayers regarding tax returns, generating graphs and reports that clearly identify problems.

2.5. INTERACTION WITH OTHER ORGANISMS

The dissemination of the platform in national specialized forums has also contributed to the collaboration between the Federal Treasury and other agencies, such as the Public Prosecutor's Office, allowing for a synergy that enables coordinated initiatives with a view to carrying out more comprehensive analyses.

2.6. NEXT USE TO IDENTIFY TRANSFERS OF PROFITS TO TAX HAVENS

In relation to the international agreements, treaties and conventions signed by Brazil that contain a specific clause for the exchange of information for tax purposes, as is the case of the CbC (IN RFB No. 1681/2016 (fazenda.gov.br ), the module is being improved to identify the transfer of profits to tax havens, a topic of attention by tax authorities on all continents.

The platform developed within the Analytics Project has proven to be very useful. The innovative way in which the Federal Revenue Service processes data has yielded results and sparked interest in Brazil and abroad.[4]

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1. https://www.gov.br/receitafederal/pt-br/assuntos/noticias/2024/setembro/receita-federal-desenvolve-tecnologia-inovadora-capaz-de-ampliar-a-deteccao-de-fraudes-e-ilegalidades-tributarias-e-aduaneiras
   
   
2. OECD (2023), Tax Administration 2023: Comparative Information on OECD and other Advanced and Emerging Economies , OECD Publishing, Paris, https://doi.org/10.1787/900b6382-en .
   
   
3. Income Tax Return – Bitcoins and other cryptoassets must be declared – IRS (www.gov.br)
   
   
4. Receita Federal shares knowledge related to the analysis of cryptoasset data with tax administrations in other countries — Receita Federal (www.gov .br )
   
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