Artificial intelligence (AI)-generated tax audits

An executive or his company learns that they are going to facd a tax audit. Why them and not someone else? What triggers an audit? And what if artificial intelligence (AI) had a lot to do with it?

Tax audits: "traditional" triggers

Missed deadlines. Whether it's paying taxes or filing tax returns, it's important to be strict about deadlines if you want to go as unnoticed as possible. In the event of a delay in filing a tax return or paying a due tax, the taxpayer should contact the tax authoritites immediately.

Inconsistencies. The administration's task is to critically examine the declarations submitted, and to verify their consistency with all the documents at its disposal. The results of the company's activities must be consistent with those of other companies in the same industry, but in the event of inconsistencies, they must be explained. If a data item in a declaration is likely to attract attention, it is preferable to add an explanatory note to the declaration: this way, the auditor has an immediate understanding and moves on efficiently.

AI: a powerful new tool

Artificial intelligence can help tax authorities detect taxpayers who are not tax compliant. AI can be used to examine large-scale financial data and identify anomalies. For example, intelligent data analysis can be used to detect discrepancies between a company's tax returns and its accounting data, customs declarations or other sources.

The proportion of AI-targeted controls rose from 13% in 2018, to 22% in 2019, 32.49% in 2020, 45% in 2021, and the French tax administration (DGFIP) targets 50% by 2022.

The use of AI in tax audits must be ethical and transparent. The Galaxie application, a new tool deployed by the tax authorities since April 2022 that enables computerized and automated processing of personal data, has been authorized by the French Ministry of the Economy after a favorable opinion from the French Data Protection Authority (CNIL).