Articles
International
Fighting Tax Fraud through Artificial
Intelligence Tools: Will the Fundamental
Rights of Taxpayers Survive the Digital
Transformation of Tax Administrations?
The authors, in this article, discuss how the
growing use of artificial intelligence tools to
fight tax fraud can erode basic taxpayer’s rights.
The use of AI mechanisms for reinforcing tax
compliance forms part of a broader digital
transformation of the tax administrations that
is taking place globally. One of the new next
frontiers for taxpayer protection can consist in
establishing algorithmic accountability rules
and adapting the tax procedures framework to
this new reality.
1. Introduction
This article analyses a recent French Constitutional
Council ruling1 that addressed the constitutionality of
a new legal instrument, introduced by the 2020 Budget
Bill, that allows for the use of artificial intelligence to fight
tax fraud. In this context, the French court looked into
the design of this mechanism and concluded that it did
disproportionately restrict taxpayer fundamental rights.
Despite the position conveyed, the court held that the use
of such artificial intelligence tools ought to be subject to
a stringent legal framework in order to provide for judi-
cial review of administration acts in the tax area, as well
as secure taxpayer fundamental rights. Only by establish-
ing “algorithmic accountability rules” can certain con-
sequences be avoided: i.e. the possibility of such instru-
ments becoming a “black box” that will taint the use of
such mechanisms and convert them into lawless tools.
2. Analysis of the French Constitutional Council
Decision on the Use of Artificial Intelligence
in Respect of Tax Control
2.1. Background information
The French Constitutional Council decision stems from
a request for constitutional review by members of the
French parliament who questioned the constitutional-
ity of several provisions embodied in the 2020 “Budget
Bill”. In particular, article 154 of that law introduced, in
* Professor of Tax Law, University of Coruña, Spain; member of
the Academic Council of the EATLP. The author can be con-
tacted at jose.calderon@udc.es.
** Professor of Tax Law, University of Minho, Portugal; member
of the Academic Council of the EATLP. The author can be con-
tacted at jribeiro@direito.uminho.pt.
1. FR: CC, 27 Dec. 2019, Decision No. 2019-796 DC.
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Jose Manuel Calderón* and João Sérgio Ribeiro**
the context of tax proceedings, a temporary (three-year)
instrument that grants the tax authorities the power to
gather taxpayer data through AI tools that operate in an
automated manner. Such tools allow for the use of infor-
mation publicly available on the Internet (social networks,
Internet sites to sell goods and services) to investigate tax
and customs infringements.
In the context of constitutional review, the Constitutional
Council was asked to determine if the new mechanism
(tax control algorithms and data analytics) was com-
patible with certain fundamental rights, such as, inter
alia, freedom of thought and speech, freedom of belief,
freedom of association, the right to privacy and personal
data protection. Amongst the main criticisms made by
members of parliament, the authors highlight the allega-
tion that the new mechanism could lead to the use of the
Internet as a method of self-censure of freedom of speech
and communication.
2.2. The French Constitutional Council decision with
regard to the AI tax tool
The French Constitutional Council analysed the design
of the new mechanism and concluded that the said mech-
anism, considering the limits imposed by the legislator in
drafting its legal regime, does not restrict fundamental
rights in a disproportionate manner. The Court consid-
ered that those limits would retain the balance between
fundamental rights protection and the public interest
goal of promoting effective tax controls. The Court set
forward the following elements as limits and guarantees
of the desired balance and proportionality:
(1) situations and the context in which the mechanism can
be used: the AI tool can only gather public data dis-
played on social network sites and electronic com-
merce platforms. This implies that the content should
be freely accessible through an Internet provider and
that the information used should be made available
voluntarily by the users of such sites and platforms.
The collection of data, the access of which implies a
password or user registration is, thus, excluded;
(2) situations excluded from the application of the mecha-
nism: the collection of data on political, religious and
philosophical opinions, ethnicity or race, sexual ori-
entation and genetics or biometrics;
(3) the use of the information collected through the AI
tool exclusively for tax purposes (face recognition, for
example, is excluded). In other words, in pursuing
European Taxation June 2020 235
Jose Manuel Calderón and João Sérgio Ribeiro
the goal of fighting tax evasion, whenever tax laws
are breached, which is constitutionally protected, AI
is only permitted when the ordinary mechanisms
available to the tax authorities do not allow for such
infringement to be detected;
(4) deletion of collected data that has no tax relevance;
(5) access and use conditions regarding collected data that
imply that such data can only be used by tax author-
ity officials bound by professional secrecy and strict
confidentiality rules;
(6) ways of using collected data: tax fraud indicia gath-
ered in an automated fashion, through algorithms,
cannot be the sole evidence sustaining a tax assess-
ment set in motion by the tax authorities; other tax
control non-automated procedures should be started
for the purpose of assessing the reliability of auto-
mated methods and to complement them, if neces-
sary; any reassessment or tax penalty resulting from
such procedures should be individualized and jus-
tified; they should not be solely supported by data
obtained in an automated way and taxpayers should
always be afforded the right to a defence and the guar-
antees established by laws protecting personal data
(rights of access, correction and deletion); and
(7) additional guarantees of deletion, cancellation and
appropriate use: rules that determine, on the one
hand, that when data collection does not reveal
indicia of fraud, that data should be deleted after 30
days and, on the other hand, if the data does disclose
indicia of fraud, it can be kept for one year or until
criminal, tax or customs proceedings started by the
authorities are closed.
The Constitutional Council observed in the final part of
the decision that the regulation introduced by the French
legislator, in connection with the new tax control tool
(use of algorithms and data analytics for the purpose of
tax control), harmonizes, in a balanced manner, the fight
against tax fraud and any fundamental rights that might
be affected. For this balance to exist, though, the checks
and balances approach requires judicial control of the
mechanism.2
Irrespective of the position conveyed, the Constitutional
Council emphasized that the AI mechanism had been
provisionally approved and that the outcome of its appli-
cation should be subject to further assessment by law-
makers when the probationary period ends. The Court
suggests that, in the context of that assessment, special
attention be paid to the effective observance of the fun-
damental rights affected and also to the effectiveness of
the mechanism in terms of curbing tax fraud.
The Constitutional Council concluded its analysis by
highlighting that its ruling was merely of a provisional
2. The French Constitutional Council was only opposed to the aspect of
the new mechanism that allowed for the levying of penalties in respect of
taxpayers involved in fraudulent situations in circumstances in which
information was already readily available in respect of them. In those
cases, the use of the mechanism to collect data in an automated way
would not be necessary and would disproportionately erode the funda-
mental rights of taxpayers. See para. 94 of Decision No. 2019-796 DC.
236 European Taxation June 2020
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nature, considering that compatibility between the novel
mechanism of collecting public data in an automated
way, through tax control algorithms, and the Constitu-
tion, should be analysed further in light of the conclu-
sions derived from an assessment to be made following
the trial period.
3. Critical Remarks on the French Constitutional
Council Decision on the Use of the AI Tax Tool
to Fight Tax Fraud
The mechanism approved by French lawmakers through
the Budget Bill for 2020 represents a tax control technique
(fight against tax fraud and data matching) that adds a new
dimension to the recent trend of digitalizing tax author-
ities.3
In the case at issue, the fight against tax fraud combines
the use of artificial intelligence, algorithms and data ana-
lytics techniques. The purpose of the said combination is
to detect tax fraud cases and to verify tax reporting (data
matching) through the collection, processing and use of
taxpayer data publicly accessed on social networks and
online commerce and intermediation platforms.
It is important to point out, however, that this mechanism
does not operate in a totally automated fashion.4 As stated
in section 2., the idea was that regulation of the mecha-
nism would be managed by the tax authorities, who would
decide on the relevance of the data. For example, they
might decide that the data is relevant enough to support
the commencement of an audit or that the data should be
deleted because it has no tax relevance.
It cannot be denied, however, that new digital technolo-
gies (AI tools, machine learning, data mining, data ana-
lytics) are likely to generate a big bang of new mechanisms
of tax control that will spawn new challenges with regard
to the effectiveness of the fundamental rights of taxpayers.
In this context, some commentators have considered
that the French Constitutional Council was naïve, in the
sense that it laid down conditions for the compatibility
of the mechanism with taxpayer fundamental rights that
are very difficult to meet in practice and are also diffi-
cult for citizens and courts to monitor. In particular, it
has been observed that the approval of the new mecha-
nism opens up a “Pandora’s Box”, allowing more room for
arbitrary decisions by tax authorities. This is so because
the use of self-learning algorithms may produce outcomes
that cannot be replicated or explained, which might lead
3. See R. Mitchell, Court Upholds French Social Data Mining Tax Law, Daily
Tax Report (27 Dec. 2019).
4. We should not overlook the fact that the General Data Protection Reg-
ulation (GDPR) (Regulation (EU) 2016/679 of the European Parliament
and of the Council of 27 April 2016 on the protection of natural persons
with regard to the processing of personal data and on the free movement
of such data, and repealing Directive 95/46/EC, OJ L 119, p. 1 (2016))
limits, in a clear way, the use of data that is processed in an automated
way (art. 22), including the profiling of affected taxpayers. Also, impos-
ing sanctions as a result of automated procedures is not clear-cut in
terms of compatibility with administrative law principles, as it follows
from existing case law (see UK: First-tier Tribunal, 20 June 2018, Expion
Silverstone Ltd v. HMRC, UKFTT 0460, wherein the imposition of a
sanction by a computer, without human intervention, was annulled).
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 Fighting Tax Fraud through Artificial Intelligence Tools: Will the Fundamental Rights of Taxpayers Survive the Digital Transformation
to hidden or non-transparent audit activities and to a
“massive control of social networks” by tax authorities.5
The Ministry of Finance, in turn, has justified the mech-
anism by invoking its legitimacy in terms of tax fraud
control. It has claimed that the use of the said mechanism,
based on algorithms, may allow for the collection of EUR
10 million per year.6
It indeed seems to the authors fairly clear-cut that the use
of new technologies — in particular “artificial intelligence
tools” — by the tax authorities allows for the fulfilment
of certain tasks and a more efficient provision of support
services, both for tax authorities and taxpayers. This is
because, on the one hand, authorities will be able to provide
services better suited to the needs and circumstances of
taxpayers, reducing compliance costs and improving legal
security by making available guides addressing the most
complex aspects of tax law (understanding and meeting
taxpayer preferences, engagement with taxpayers to
improve services, etc.); on the other hand, these technol-
ogies allow tax authorities to manage, in a more efficient
way, available resources, focusing on fine-tuned and selec-
tive audits, giving priority to situations that pose the great-
est risks.7 It is paramount to observe, in connection with
what has been said herein, that the manner in which the
post-BEPS measures on fiscal transparency operate at the
tax administration level — coupled with both the digitali-
zation of tax authorities and the new techniques of man-
aging tax risks — rather than changing traditional tasks of
the tax authorities, change their customary approaches.8
5. See La Quadrature du Net, Le Conseil Constitutionnelle autorise le fisc à
la surveillance de masse (30 Dec. 2019), available at www.laquadrature.
net.
6. See W. Hoke, French Court Oks Trawling of Social Media for Tax Com-
pliance, TNI p. 103 (6 Jan. 2020).
7. See G. Piazza & H. Rajani, Tax Data and Analytics: Moving from Control
to Transformation (KPMG International 2018).
8. In relation to the (transformative) impact of new techniques on the
functions performed by tax authorities as a consequence of increased
post-BEPS transparency, coupled with new technologies and risk man-
agement techniques, certain ideas can be put forward: (i) the asymmetry
or gap in terms of the information exchanged between tax authorities
and taxpayers has been dramatically reduced due to (a) “novel tax trans-
parency”, (b) implementation of new digital tax compliance techniques
(e-filing of tax returns, e-reporting, e-payment of tax) and (c) novel tax
analysis and risk management (data analytics, machine learning, tax
risk analysis and taxpayers profiling); (ii) tax management has evolved
from “downstream compliance” to “upstream compliance”; (iii) the tra-
ditional distinction between “easy-to-tax activities/taxpayers” (corpo-
rate tax of large and medium-sized companies, individual income tax
of workers) and “hard-to-tax activities/taxpayers” (small businesses, the
informal sector, cash sector, etc.) is becoming increasingly blurred as
a result of the use of new techniques involving substantial economic
and tax data management (big data, AI) by the tax authorities (see J.
Alm, J. Martinez & S. Wallace, Taxing the Hard-to-Tax: Lessons from
Theory and Practice (Elsevier 2004); (4) the traditional endeavours of
tax authorities (management, auditing, collection, etc.) are undergoing
a transformation, not in terms of the nature of the functions they have
to fulfil, but the way they perform such functions, as a consequence
of the ongoing process of administrative digitalization: (a) risk assess-
ment and audit – the new tax transparency measures (new techniques
of analysis, based on tax risks) demand that tax authorities manage
big data in a way that allows for the automated identification of high
risk taxpayers and transactions. This enables the tax authorities’ “audit
capacity” to be improved, which will tackle the situation addressed by
the Forum on Tax Administration (FTA)-OECD when it highlighted
that 1/3 of the OECD members tax authorities’ resources were devoted
to tax control (OECD, 2018 Tax Administration Report (OECD 2018)).
In other words, the use of tax transparency measures (“tax asymme-
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of Tax Administrations?
That is, the traditional tasks of tax authorities (manage-
ment, audit, collection, etc.) are undergoing a transfor-
mation, not in terms of the nature of the functions they
have to fulfil, but the way they undertake such functions
as a consequence of the ongoing process of administra-
tive digitalization.
Nevertheless, the use of artificial intelligence tools should
be subject to stringent rules that include an effective legal
review of administrative acts resulting from the use of
such tools and the protection of the fundamental rights of
taxpayers. The legal framework for AI tools should ensure
that such mechanisms do not open a “Pandora’s Box” or
become a “dark zone” of hidden surveillance activities
that would allow the tax authorities to operate beyond the
limits of the law. Thus, it is important, in this respect, to
establish legal accountability mechanisms regarding such
algorithms to ensure that their use to target “tax fraud”
can be explained to taxpayers and is justified (such as
at the start of an audit) according to the corresponding
legal framework. In this context, it is necessary to estab-
lish monitoring systems by independent bodies of experts
to ensure that the algorithms in use do not operate in an
arbitrary or illegal fashion.
The use of artificial intelligence tools, for the purpose
of promoting tax control, is not science fiction, since it
has been used by a large number of countries within the
framework of a new trend in terms of tax administration.9
In connection with this development, attention should be
drawn to the way the mechanisms under scrutiny, such as
unsupervised machine learning mechanisms, operate. It
should be noted that such mechanisms carry out a massive
amount of data analysis for the purpose of spotting “out-
liers”, i.e. taxpayers who might be in unusual situations in
comparison to their “peers”. They are then profiled in “clus-
ters” according to the deviation they present (risk analy-
sis). Such profiling of taxpayers may lead tax authorities
to devise, based on “deviation patterns”, administrative
try” reduction) along with other tax risk management techniques max-
imizes the tax authorities’ “audit capacity” and increases tax control,
bringing about relevant consequences in respect of taxpayers; (b) data
management – data management by using new technologies (data ana-
lytics tools, AI, big data) represents a new sub-function that is very rel-
evant to drawing benefits from new sources of information that have
emerged from the new tax transparency measures; (c) collection – as a
result of implementation of the new tax transparency measures and the
new digital mechanism of tax data management, tax authorities will not
only be more efficient in tax control, but also in improving collection
techniques. See S. Gueydi & M. Abdellatif, The transformation of tax
administration functions in the automatic exchange of information era,
16 eJournal of Tax Research 3, p. 780 et seq. (2019).
9. In 2019, the OECD revealed that about 35 member states of the FTA
make use of “data analytics” mechanisms in respect of executing their
tax risk management tools and taxpayer profiling. See OECD, Advanced
Analytics for Tax Administration: Putting data to work (2016); OECD,
Tax Administration 2019 (Comparative Information on OECD and other
advanced and emerging economies) p. 50 et seq. (OECD 2019); B. Zagaris,
Data Analytics Shows the Way to Progress in International Enforcement,
TNI (12 Aug. 2019); Piazza & Rajani, supra n. 7; and EY, Tax Authorities
are going Digital (Oct. 2017). What was stated in sec. 3. does not mean
that the use of artificial intelligence digital tools goes beyond the scope
of action of tax authorities to encompass the public sector as a whole.
On the contrary, many developed countries, such as the United States,
have already started to regulate the use of artificial intelligence tools
in order to avoid unlawful use (see D. Pozza, Insight: AI Tech in 2020 –
Balancing Regulation with Innovation, Bloomberg Law (23 Jan. 2020).
European Taxation June 2020 237
Jose Manuel Calderón and João Sérgio Ribeiro
procedures, ranging from an audit to the adoption of pre-
cautionary measures, such as seizure of bank accounts.10
In these particular situations, it might happen that the
algorithms used to determine “risk factors” will not be
disclosed to the targeted taxpayers, which may imply that
the mechanism operates in an opaque manner, from the
taxpayer’s perspective. Hence, in such situations, the pos-
sibilities available for the taxpayer to exercise her rights
of defence will appear to be dwarfed. To put it differently,
the fundamental guarantees of taxpayers, such as equality
of arms, right to a defence, judicial protection, to name a
few, will be weakened.
Given these concerns, the authors advocate the position
of the French Constitutional Court and various commen-
tators11 to the effect that there is a need to ensure that the
said AI mechanisms are regulated in an overt manner
and designed in a way that ensures their operation is
limited and compatible with the fundamental rights of
taxpayers.12
It is important to observe that the GDPR contains four
provisions that impact the functioning of the algorithms.
Article 22 of the GDPR excludes, in a generalized way, the
automated use of algorithms for the purpose of making
administrative decisions. Articles 13, 14 and 15 of the
GDPR, in turn, grant individuals the right to an expla-
nation of any decisions made by the authorities based on
their personal data processing.13
In this sense, the relevant ECJ decision in Puskar (Case
C-73/16)14 should be noted, which establishes limits on
the tax administration’s power to develop and use “lists
of high risk taxpayers”. In connection with this, the ECJ
has asserted that, although tax authorities may manage
taxpayer data and create files for the purpose of under-
taking tax control and fighting tax fraud, such instru-
ments, nevertheless, must be compatible with the GDPR
framework, which provides for several protection rights in
respect of individuals potentially affected by the adminis-
tration’s acts. In this context, the GDPR has an important
impact on the tax administration’s control functions; in
this respect, the creation of “lists of high risk taxpayers”
should be authorized by law and be based on indicia or
objective elements of fraud that justify such a measure.
Moreover, it is mandatory that such measures taken by
the tax authorities, as well as the underlying purpose of
such measures, comply with the principle of proportion-
ality and be subject to judicial review.15
10. See A. Bal, Ruled by Algorithms: The Use of “Black Box” Models in Tax
Law, TNI, p. 1159 et seq. (16 Sept. 2019).
11. Id., at pp. 1161-1165.
12. See G. Mazzoni, (Re)defining the Balance between Tax Transparency and
Tax Privacy in Big Data Analytics, 72 Bull. Intl. Taxn. 11 (2018), Journal
Articles & Papers IBFD.
13. In connection with the impact of the GDPR on the use of algorithms by
authorities, see M. Brkan, Do Algorithms Rule the World? Algorithmic
Decision-Making and Data Protection in the Framework of the GDPR and
Beyond, 27 International Journal of Law and Information Technology
2, p. 91 et seq. (2019).
14. SK: ECJ, 27 Sept. 2017, Case C-73/16, Peter Puškár v. Finančné ria-
diteľstvo Slovenskej republiky and Kriminálny úrad finančnej správy,
ECLI:EU:C:2017:725.
15. The ECJ highlighted that including taxpayers in the list of high risk
taxpayers may affect the presumption of innocence and the freedom
238 European Taxation June 2020
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In the context of the ongoing discussions, emphasis should
be placed on the fact that the fundamental right to a
defence (protected by national Constitutions, the Charter
of Fundamental Rights of the European Union and by the
European Convention on Human Rights) implies that the
person affected by an administrative decision is able to
exercise her right of defence under conditions of equality
of arms and with full access to the file and to all informa-
tion and documents based on which the authorities made
the decisions affecting the taxpayer.16
Tax compliance can only be ensured, therefore, through
mechanisms reinforcing tax control based on the devel-
opment of good administrative practices that respect and
safeguard both democratic principles and procedures
complying with the rule of law.17 If such a context is estab-
lished, it will be arguable that the tax authorities’ “digital
transformation” – contributing not only to the reinforce-
ment of mechanisms fostering tax compliance, but also
the improvement of tax assistance and management in
real time (leading to lower costs for the public and private
sectors) – will be welcome. Nevertheless, those develop-
ments cannot be put in place in a manner that jeopardizes
the fundamental rights of taxpayers. Any resort to such
technology should be compatible with the fundamental
rights of taxpayers, which operate within the framework
of the rule of law (for example, the right to a defence, the
right to be provided with a statement of reasons, the right
to judicial review of administrative discretionary powers,
the right to proportionality and the right to confidential-
ity of the information, etc.).18
The current challenge, however, remains not only to reha-
bilitate taxpayer rights, which have been eroded by the
post-BEPS paradigm shift, but also to guarantee that
the technological transformation undertaken by the
tax administration does not render certain fundamen-
tal rights, protecting taxpayers from a potential abuse of
power, “toothless”.
to conduct a business, granted by the Charter of Fundamental Rights
of the European Union [articles 48(1) and 16].
16. For a similar position, see HU: ECJ, 16 Oct. 2019, Case C-189/18, Glen-
core Agriculture Hungary Kft. v. Nemzeti Adó- és Vámhivatal Fellebbvi-
teli Igazgatósága, on the observance of the right of defence and the prin-
ciple of equality of arms of taxpayers in the context of tax procedures.
In this decision, the ECJ stated that the right of defence encompasses,
in particular, a statement of reasons and the right to be heard, which
implies that the taxpayer can access all the proof, data and information
based on which the tax authorities acted.
17. See V. Braithwaite, Tax System Integrity and Compliance: the Democratic
Management of the Tax System, in Taxing Democracy: understanding tax
avoidance and evasion p. 269 (V. Braithwaite, ed., Routledge 2017).
18. Hence, every decision made using artificial intelligence algorithms
should be adequate and necessary to meet the legitimate goals pursued;
this requires the ability to explain the programming criteria and the
functioning of the algorithms. Exercising discretionary powers in this
context should be done in a way that allows for a statement of reasons
that justifies the legality of the proceedings carried out, the rationale for
their tax relevance and the guarantee that they are not arbitrary. In con-
nection with this, see M. Perry, iDecide: Administrative Decision-Mak-
ing in the Digital World, Australian Law Journal 1, p. 29 et seq. (2017);
and L. Moses, Artificial Intelligence in the Courts, Legal Academia and
Legal Practice, Australian Law Journal 7, p. 561 et seq. (2017).
© IBFD