Use of big data and artificial intelligence to tackle VAT evasion in Italy

In Paper No. 25, published on the 4th of August, Assonime (Association of Italian Joint-Stock Companies) analyses in detail the new measures introduced, highlighting how these are relevant to reduce the tax gap and improve the related process of the digitalization of controlling methodologies. 

The reduction of the VAT Gap, a relevant issue both at European and national level, is translated into the fight against tax evasion and fraud and goes through the improvement of tax compliance between tax authorities and taxpayers and the use of technology for more effective tax collection. Reducing the gap would lead to an improvement in the public finances of individual states: 0.3 per cent of the VAT collected at national level is transferred to the EU and accounts for 12 per cent of the total EU budget.

Assonime notes that the focus of the new strategy to contrast VAT evasion is the use of the big data available to the administration, combined with the application of new technologies such as artificial intelligence.

In order to effectively fight frauds related to the attribution of VAT numbers, the Budget Law has introduced further preventive measures: the insertion of paragraphs 15-bis.1 and 15-bis.2 which reinforce what is already foreseen in paragraph 15-bis of Art. 35, D.P.R. No. 633/1972, i.e. the obligation to verify the truthfulness of the information provided by the subjects who made the request. The innovation introduced by these paragraphs consists in the implementation of a specific risk analysis procedure and the identification of those at greatest risk of evasion. The analysis relates to a subjective profile such as manifesting lack of entrepreneurship, professional and habitual conduct of business, as to an objective profile of economic-accounting anomalies and tax conduct. Once the risk profile has been identified, these elements will be checked with a confrontation between taxpayer and tax authority, and in the event of non-compliance with the invitation or a negative outcome of the controls, it will lead to a notification of termination of the vat registration with the simultaneous imposition of an administrative penalty of 3.000 Euro.

Thanks to the help of digital technologies and the availability of information from the various databases, it will be easier to implement cross-checks and carry out targeted and punctual statistical risk analyses, which will lead to an improvement of tax vigilance and a better understanding of the dynamics within the economic environment.

To combat VAT fraud within the e-commerce, Article 1, paragraph 151 of the Budget Law 2023, introduces reporting obligations for entities who sell through online platforms certain categories of goods (such as mobile phones, gaming consoles, tablets, PCs and laptops) from Italy to private consumers. It will be mandatory for the taxpayers, who conduct online sales with the above characteristics, to transmit to the Tax Authority all the information of suppliers and transactions carried out. The provision, which does not yet appear to be operational, would be introduced since the anonymity that characterizes sales on such platforms facilitates tax evasion.

Finally, the Circular provides a commentary to the penalties provided for in case of application of the reverse charge to non-existent transactions: providing that in the case of the application of reverse charge to non-existent exempt, non-taxable and non-taxable transactions, as well as for non-existent taxable transactions, in cases where the non-fraudulent intent is proven, the most favorable penalty from 5 per cent to 10 per cent of the taxable amount with a minimum of 1,000 Euro will be applied. On the other hand, in the case of the application of the reverse charge to a non-existent taxable transaction, which is part of a fraudulent scheme with the purchaser’s guilt, the more serious penalty of undue deduction equal to 90 per cent of the deduction made is due.