Big Data to Combat Tax Evasion

In Costa Rica, the Ministry of Finance is using a predictive model designed with data mining techniques to determine the behavioral patterns of companies that might be circumventing tax payments.

Tuesday, May 9, 2017

Analyzing and crossing checking historical information from multiple databases, the statistical model used by the Directorate General of Taxation attempts to predict which companies are more likely to evade paying taxes depending on their historical behavior measured through transactions, tax returns and other data. By linking all of the information, they identify patterns of behavior similar to those of other companies that have evaded taxes in the past.

Crhoy.com explains that "...The model also determines whether the earnings reported to the state coincide with the economic capacity demonstrated in everyday life.  If you file a tax return for a very low amount, but the Treasury detects a lot of trips outside of the country, imports of goods, vehicles and new properties, and enrollments in private schools, alarms bells start ringing. If the taxpayer can prove that the trips and vehicles have been paid for by legal and justified means, the investigation ends, if not, a process is opened."

"... All data is "cross checked" and filtered by particular searches. For example, if you want to investigate false suppliers, the Treasury will check to see if there is any degree of consanguinity between customers and suppliers, or whether there are unique customers or sole suppliers and even the age of the supplier of the good or service."This does not mean that it is a crime for family members to do business, or that a company can not buy all of its merchandise from a single supplier, or that the supplier can not be more than 80 years old, but it is an alert," said Karla Salas, Director of Tax Intelligence."

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