Naming and shaming the tax cheats

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Tax agencies are getting tough. They are using analytics to track down tax evaders and fraudsters and then publicly shaming them. For example, the UK’s tax and revenue agency, HM Revenue & Customs (HMRC), has, for the first time, exercised its power to publish the names of ‘deliberate tax defaulters’ on its website. The first […]

Tax agencies are getting tough. They are using analytics to track down tax evaders and fraudsters and then publicly shaming them. For example, the UK’s tax and revenue agency, HM Revenue & Customs (HMRC), has, for the first time, exercised its power to publish the names of ‘deliberate tax defaulters’ on its website.

The first published HMRC list featured nine names. Typically small business owners, between them they owed £1.45m in unpaid tax and fines. Arguably it’s a small step, but one that has the potential to become much bigger – and not before time in in the eyes of some taxpayers. As UK Prime Minister David Cameron wrote recently in euObserver.com, “People rightly get angry when they work hard and pay their taxes, but then see others not paying their fair share.”

Tax agencies around the world agree. They are all determined to crack down on the people and businesses costing 145 countries more than US$3.1 trillion annually through tax avoidance and error. In New Delhi, India, for example, the Income Tax Department has recently announced its plans to name and shame ‘chronic’ tax defaulters.

In the US, the Internal Revenue Service (IRS) has released what it calls its ‘Dirty Dozen Tax Scams for 2013’. This alerts taxpayers to the top scams to look out for as they compile their tax returns, such as identity theft, phishing and hiding income offshore. The IRS has also expanded a law enforcement programme aimed at obtaining tax return data to support the investigation and prosecution of specific identity theft cases.

Back in the UK, how is HMRC unearthing its tax cheats? At the heart of its investigations is a clever technology system called Connect. The solution, which includes data analysis and data mining products and tools from SAS,  was implemented by Capgemini and takes an analytics-based approach. Essentially, it’s a strategic risking tool that cross matches a billion internal and third party data items to uncover hidden relationships across organisations, customers and their associated data links. These include bank interest, lifestyle indicators and stated tax liability.

Process change at HMRC is another factor. The agency’s statisticians now use Connect to produce target profiles, while risk and intelligence investigators generate campaigns and cases for investigation. Automated feeds into HMRC’s case management system allocate work to the correct caseworkers. Their feedback further refines intelligence in Connect.

And the result? The agency believes exploiting information and intelligence in this way will help deliver £7 billion more tax yield by 2014/15. That’s a significant sum at a time when all governments desperately need an injection of additional revenue.

With technology like this, the tax cheats had better watch out.

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