Information Infrastructure for Interaction Between Tax Authorities and Banks

Importance of Financial Information for Tax Authorities

Tax authorities use information about taxpayer bank accounts and transactions in audit activities. Information infrastructure captures this information automatically or manually, without the participation of the taxpayer. The tax authorities require information about open current, deposit, and other accounts of taxpayers at credit institutions. They are also interested in information about electronic wallets at credit and other organizations, such as Internet companies or telecommunications operators.

In connection with the accounts, the tax authorities request information on debit transactions, credit transactions, and balances. The information is transmitted in the following ways:

• Unconditional method. Credit and other institutions self-report changes in clients or provide information on a schedule, such as daily.
• Conditional method. Tax authorities request the source and get a response on a particular taxpayer or a list of taxpayers.

For groups of accounts or transactions, there is a mixed approach. For example, authorities can use the unconditional method for accounts, and the conditional method for transactions.

Infrastructure Components

The infrastructure that ensures information exchange between banks and tax authorities includes the following major functional blocks:

1. Register of taxpayers. General information about taxpayers.
2. Register of current and other accounts of taxpayers. Lists of taxpayer accounts.
3. Transactions on current accounts. Information about cash flow and account balances.
4. Aggregated information. Aggregated data includes calculations by account turnover, types of transactions, a tax base, the allocation of taxes, etc.
5. Information requests from tax authorities and responses from organizations.
6. Infrastructure administration. This block deals with maintaining regulatory and reference information, connecting and communicating with information sources, searching primary documents, controlling deadlines for replying to the tax authorities’ requests, managing methods of information exchange, etc.

Tax administrations should build such infrastructure with careful planning and through collaboration with the banking industry. We go into great depth about how tax information systems are designed and developed in a series of dedicated articles^[1].

[1] To read more please see:
Functional Architecture of Tax Administration Information Systems. Anatoly Gaverdovsky. URL: https://taxtech.digital/2022/11/14/functional-architecture-of-ctas/
System Architecture of Tax Administration Information Systems. Anatoly Gaverdovsky. URL: https://taxtech.digital/2022/11/28/tax-administration-system-architecture/