The right to digital orderliness
This year’s Chief Technology Officer of the Year award does not go to a person, but to the legion of coronaviruses. Acting as a stress test for digitization, Covid-19 has digitally catapulted a number of businesses and organisations a few light years into the future. Yet, the urge for digitization is by no means new: it has been around for almost two decades.
Tax legislation, on the other hand, did rather poorly in that stress test. Let’s take a tax audit process as an illustration. The law prescribes that a taxpayer is obliged to submit all ledgers and documents, i.e. the accounts. When asked how these must be presented, the law replies: “without travelling”, at the taxpayer’s domicile therefore. Strangely enough, the tax authorities have so far no means of having accounts sent to them. While the auditor may ask the taxpayer to kindly oblige, if the latter does not feel like it, the tax authorities must audit the accounts on site.
When dealing with digital documents, the tax authorities can have a copy of the documents sent to them. The taxpayer then takes a copy in the presence of the auditor and sends it to the tax authorities, unless the taxpayer agrees that the tax authorities themselves take a copy. Physical documents may be taken, but not copied, unless the taxpayer voluntarily agrees to provide a copy. Of course, this free will is relative. If the taxpayer does not agree to it, the downside is that the tax authorities take the documents with them and the taxpayer no longer has access to them. This complex process applies to both income tax and VAT. Having such arrangements run parallel for once is almost unheard of.
The legislator wants to change this and ensure that these things are done digitally and are therefore Covid-proof. In the future, taxpayers would have to make the accounts available “through a secure electronic platform of the Federal Public Service Finance”. That is, if those ledgers and documents are available digitally. Covid-19 literally keeps the tax authorities at bay. A natural progression therefore.
Still, this will not be easy for the FPS Finance. Already in the second half of the past century – i.e. long before the GPDR data protection directive was introduced – the legislator had rightly understood that the accounting records that the tax authorities collect from the taxpayer are at the very least confidential business information, and that a tax audit also implies an implicit waiver of the right to privacy. That is why the tax legislator has worked out a practical method to ensure that as little information as possible about the taxpayer ought to be lying around in the tax administrations.
A tax audit implies an implicit waiver of the right to privacy.
This also points to the real challenge for the FPS Finance: respecting confidentiality and transparency. Indeed, by failing to group all of a taxpayer’s information in a file and providing transparency in the process, the tax authorities can hardly, if at all, fulfil one of the criteria. The recent farce relating to the UBO register data breach is a perfect example. The legal initiative is another opportunity for tax authorities IT specialists to consider the problem and adapt the system to the privacy and transparency rules. This is an urgent need. And it is only a matter of time before the government is held accountable for this.