This lesson examines how digitalisation and data analytics are transforming risk assessment and compliance management in tax administration. It covers the use of data analytics for risk scoring, taxpayer segmentation, and targeted compliance interventions.

  • Data-Driven Risk Assessment: Tax administrations are increasingly using data analytics to assess compliance risks and select taxpayers for audit. The use of big data is now widespread, with 80% of administrations using big data to improve compliance. This represents a significant increase from previous years .

  • Risk Scoring and Profiling: Advanced analytics enable tax administrations to build profiles of taxpayers by combining data from multiple sources, including internal and external data. Risk scoring techniques identify taxpayers most likely to be non-compliant, enabling auditors to focus on the highest-impact cases. The Analytics Maturity Model developed by the OECD helps administrations self-assess their capability in this area .

  • Taxpayer Segmentation: Tax administrations manage specific groups of taxpayers on a segmented basis, particularly large business taxpayers and high-net-worth individuals. The rationale for focusing resources on these groups revolves around :

    • Significance of tax compliance risks: Due to the nature and type of transactions, offshore activities, and strategies to minimise tax liabilities

    • Complexity of business and tax dealings: Particularly the breadth of business interests and mix of private and tax affairs

    • Integrity of the tax system: The importance of assuring stakeholders about work undertaken with high-profile taxpayer groups

  • Data for Tax Audit: Tax administrations use a wide range of data sources for analytical and audit purposes, including :

    • Tax returns and financial statements provided by taxpayers

    • Information provided by third parties (employers, banks, financial institutions)

    • Information from previous tax audits

    • Customs and trade data

    • Social benefit payment data

    • Foreign source income information

  • Compliance Improvement: The use of data science and analytical tools has become a common and integrated part of tax administrations across the world. The purpose of big data use includes :

    • Improve compliance (97.5% of administrations)

    • Identify trends (72.5%)

    • Revenue forecasting (60%)

    • Policy forecasting (47.5%)

    • Provide new services (45%)

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