Tax is a crucial revenue stream for administrations across the world. While many agencies have already established processes for compliance and enforcement, a combination of avoidance and error is still costing governments billions. Detection and Prevention measures provide the key to tackling these challenges

1. Global Public Sector the way we see it
Winning the Fight against
Avoidance and Error
Protecting Tax Yield with a Focus on Detection and Prevention
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS

2. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Combining Detection and Prevention Previous | Next

3. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Protecting Tax Yield with a Focus on Detection
and Prevention
Tax is a crucial revenue stream for With such a huge sum failing to reach the pound, euro or dollar that goes uncollected
administrations across the world. public purse, it is no wonder that almost is money urgently needed for investment
While many agencies have already every tax office is looking to increase the elsewhere. But it isn’t exclusive to these
established processes for compliance level of compliance with the tax laws to countries. In rapidly growing economies too,
and enforcement, a combination of
increase revenue. In the UK, for example, there is a need to improve tax compliance
avoidance and error is still costing
governments billions. the Government’s 2010 Spending Review set so that the development of public services
the tax agency (HMRC) a target to raise an can be properly funded. Emerging markets
Capgemini offers tax agencies and inspectors extra £7bn a year by 2014-151. Likewise in typically face the challenge of a large
an effective and powerful solution to France, the tax and customs offices (DGFIP) informal economy, where workers are paid
protect tax yield by combating tax avoidance reported a 3.5% increase in detected fraud, in cash and spend money with unregistered
and reducing the tax gap. The value of this equivalent to a €97M increase in 2010, businesses. In a market like Brazil this
offering cannot be underestimated. Recent bringing the total value to €2.8bn in 20102. unseen economic activity makes up 37% of
figures from one organization suggest that GDP and helps to create a tax gap estimated
tax avoidance and error costs 145 countries, These figures reflect the ambition of other at between 42% and 50%.3
representing over 98% of world GDP, more administrations in those countries hit by
than US$3.1 trillion annuallyi. the recent economic crisis where every
i
Tax Justice Network: http://www.tackletaxhavens.com/Cost_of_Tax_Abuse_TJN%20Research_23rd_Nov_2011.pdf
1
http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf Previous | Next
2
http://www.budget.gouv.fr/files/bilan-dnlf-2010.pdf
3
“New Estimates for the Shadow Economies all over the World”, Friedrich Schneider, Andreas Buehn & Claudio E. Montenegro, International Economic Journal Vol. 24, No. 4, 443–461, December 2010

4. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Numerous factors contribute to a drop in • Use of social networking to share Emerging markets not only face many of the
tax yield at a time when the public sector information about tax avoidance activities same issues, but in also more fundamental
is coming under pressure to maximize by groups other than organized criminals; challenges, such as a lack of the data and
tax revenues. The current economic data management systems needed to raise
environment is just one of them; the • Anti-fraud sophistication in the private yields.
downturn has seen tax revenues decline sector financial institutions, leading
more rapidly than the overheads of running organized criminals to target the public
a country, so tax agencies must focus even sector;
more on reducing the tax gap to increase
revenues. • Availability of public sector on-line
channels that make it easier and cheaper
Other contributory factors particularly of for criminals to target tax agencies from
relevance in developed countries include an anywhere in the world;
increase in:
• Sophistication and “industrialization”
• Physical mobility, both at national and of an agile and resourceful criminal
international levels, which makes it more industry.
difficult to correctly assess liabilities or
track taxpayers;
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5. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Identifying Tax Avoidance Previous | Next

6. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Identifying Tax Avoidance
While tax avoidance is a significant Across all geographies, the tax gap comes • Errors: while individuals can deliberately
contributor to the tax gap, it isn’t the only down to four main factors: omit to report income, non payment
one. When you add in errors either by can also be due to errors, especially
the taxpayer or the tax administration, • International transactions: as more administrative errors within the tax
along with other factors, the size of the
economic activity globalizes, the easier it organization itself or submission of
problem becomes even bigger.
becomes to move money around and to inaccurate information without the
therefore avoid taxes; declaring taxpayer being aware. This is
In the UK, what begins as a £15.2bn
often the result of unclear rules that need
problem as a result of tax fraud grows to a
• Black market: non declared revenues and to be better defined and communicated.
tax gap of £40bn4 when all the variables are
non paid contributions quickly add up.
brought to bear. Tax avoidance is another
In Italy, for example, Industry Minister • Data: a lack of good quality data and
factor in the complex tax environment. It
Paolo Romani estimated that in 2011 poor data management combine to
allows taxpayers to manage their finances
phantom or undeclared income stood at prevent agencies gaining a clear picture of
in a way that allows them to pay less tax,
$320bn;5 who is paying what, who isn’t, and what
for example by paying into a tax exempt
they should be paying.
pension fund.
4
5
http://www.hmrc.gov.uk/stats/mtg-2011.pdf
http://articles.cnn.com/2011-11-02/opinion/opinion_europe-shadow-economies_1_tax-evasion-tax-collection-tax-rates?_s=PM:OPINION
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7. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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So who is avoiding paying their taxes,
whether purposefully or through human
error? Non-payers come from every area
of the taxpaying community. They include
private citizens who don’t declare rental
income on a second property, buy their
cigarettes on the black market, or fail to
declare their earnings. They can be micro
firms that fail to register for certain taxes
or have undeclared income, medium-
sized companies that fraudulently claim
tax deductions for R&D activities, or large
groups and companies that have found
corporation tax loopholes. In the UK,
HMRC attributed half of the 2009-10 tax
gap to Small and Medium Enterprises.ii
ii
http://www.hmrc.gov.uk/stats/mtg-2011.pdf Previous | Next

8. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Our Offer to Tax Agencies Previous | Next

9. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Capgemini’s Offer to Tax Agencies:
Prevention and Cure
In March 2010, the UK National Fraud downstream processes, once repayment combines cure and prevention. On the
Authority’s publication “A fresh approach is made, recovery of monies requires one hand, the cure has a quick impact
to combating fraud in the public sector”iii time and cost, most notably in people. and removes avoiders who are already in
compared the public and private sectors. It In addition, such activity may not be the system. In Australia, for example, the
observed that the private sector’s main focus successful, especially in identifying Australian Taxation Office reported that
was on fraud prevention. This consisted of fraudulent cases. Bearing this in mind, it for the quarter 1 July to 30 September
identifying high risk activities and refusing has become necessary to take the idiom of 2011, 356 people and 122 companies were
the provision of a service or product, or “prevention being better than cure” at face prosecuted and convicted of taxation and
flagging high risk cases for investigation value. A successful approach requires the superannuation offences. Some 12 people
before a transaction was completed – so application of a combination of upstream received custodial sentences, ranging from
called upstream activities. The report and downstream techniques; capitalizing two months to five years. Thus the fraudsters
identified a stark contrast to the public on the existing and future investments in were removed from the system6.
sector approach, which is predominantly people, organization, processes, information
concerned with detection, investigation and and technology. On the other hand, prevention is less costly
prosecution of fraud that has already been and ensures a progressive reduction of
committed – downstream activities. In other words, to tackle the tax gap the tax gap. Technology combined with
The report urges more widespread use of problem, governments need to adopt a evolution of existing business processes
private sector upstream techniques. In targeted and holistic approach that can provide solutions to detect evasion and
iii
6
http://www.eurim.org.uk/activities/psd/A-fresh-approach-to-combating-fraud-in-the-public-sector.pdf
http://www.ato.gov.au/corporate/content.aspx?doc=/content/00299856.htm
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10. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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act on both prevention and cure. It can This technology-enabled framework • Results: analysis of results on a case-
evolve constantly to fight fraudsters who are comprises: by-case basis to identify potential
increasingly skilful and well-informed. A improvements and follow up global fraud
holistic approach at a national level allows • Data management: data is collected activity. This last stage leads us to the
inter-agency cooperation and enables a from multiple sources, cleansed and then prevention.
single view of the customer, which allows analyzed;
taxpayers to comply with their obligations At the same time, further measures should
and tax agencies to effectively manage their • Modeling: statistical methods (based be built around multiple independent
compliance regimes. upon known cases) are used to track defenses against evasion, including identity
fraudsters and explore new methods of management, risk profiling, watch-lists, and
Successful management of avoidance defrauding the tax agency, essentially due advanced business and transaction rules.
depends on effective gathering and analysis to the constantly evolving skills of the Tax agencies need processes that don’t just
of data. In some countries agencies have fraudsters; make it easy for citizens to understand their
already been given more power to ask obligations and comply with the rules, but
potential avoiders for additional details that • Alert detection: regular fraud scenarios also make it difficult for them not to comply.
can be checked against their tax returns. detect anomalies and generate alerts; Above all, systems must be flexible enough
However, any new data sources have to be to allow prevention and detection strategies
factored into the analysis inspectors perform • Investigation: analysis of suspicious and business rules to change regularly, so
without rebuilding the IT system every time. cases using available data allows the that agencies are not outmaneuvered by the
Capgemini can help. We have worked with agency to track suspicious cases; constantly evolving tactics of tax evaders.
tax agencies to put in place fraud detection
systems and processes that sit within a
defined anti-fraud framework solution for
tax agencies.
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11. Global Public Sector the way we see it
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Capgemini’s Unique Solutions Previous | Next

12. Global Public Sector the way we see it
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Capgemini’s Unique Solutions for Tax Agencies:
Tailored for Individual Levels of Maturity
Capgemini has extensive experience as give them the tools and methods they need • Solution Design – a design phase of
a trusted advisor to tax agencies world- to make the whole process of tax collection approximately three months to produce
wide. We recognize that the labor inten- cost-effective and efficient depending on the blueprint for a holistic fraud
sive nature of tax investigations demands government priorities. management approach underpinned
a solution for automating as much of the
by best-of-breed technology. This is
analysis as possible to generate new
Our innovative and effective techniques are usually combined with a small pilot to
leads for investigators.
built into tailored solutions that typically demonstrate the value of the solution to
consist of: the stakeholder;
We help our clients accomplish this and
reduce the tax gap by cutting avoidance and
• Avoidance and Error Assessment – a • Solution Implementation – a more
errors. At one level we work with our cli-
three to six-week assessment of existing dedicated proof of value, followed
ents to look at the way in which they detect
technology and processes around by the design and build of a larger-
systemic error and then help them to im-
detection and prevention to identify the scale fraud management system with
prove their process. At another level we use
key areas for improvement and what the options for fraud management as an IT
sophisticated fraud detection systems that
priorities are; managed service or as Business Process
build on the expertise of tax inspectors and
Outsourcing.
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13. Global Public Sector the way we see it
COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
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Our proposal is based on the following
factors:
• Business priorities that are defined
with the head of fiscal control to
primarily focus on the easiest cases to
sanction;
• Tackling fraud that can be quickly
identified without tying up too much
time or resource, whether on cost or
human resources
Capgemini is successfully delivering
• Integrating upstream processes into the projects for tax offices globally:
strategy to make the existing analytical Australia, Sweden, France, UK, India,
system more efficient in the medium or US, Brazil, Netherlands, and Slovakia.
long term.
For more information or to request a
meeting please contact:
publicsector.global@capgemini.com
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