Advanced Analytics for better Tax Administration PuTTing DATA To Work Advanced Analytics Contents Chapter 1. Introduction to analytics use in tax administrations for better Tax Chapter 2. Advanced analytics activities Chapter 3. Advanced analytics in the wider organisation Administration Chapter 4. Managing advanced analytics projects effectively Chapter 5. Resourcing advanced analytics projects: tools and data PuTTing DATA To Work Chapter 6. Findings and recommendations for better use of advanced analytics A d v a n c e d A n a ly t ic s f o r b e t t e r T a x A d m in is t r a t io n P u T T in g D A Consult this publication on line at http://dx.doi.org/10.1787/9789264256453-en. TA T This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and o statistical databases. W o Visit www.oecd-ilibrary.org for more information. r k isbn 978-92-64-25644-6 9HSTCQE*cfgeeg+ 23 2016 18 1 P Advanced Analytics for Better Tax Administration PUTTING DATA TO WORK This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of OECD member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2016), Advanced Analytics for Better Tax Administration: Putting Data to Work, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264256453-en ISBN 978-92-64-25644-6 (print) ISBN 978-92-64-25645-3 (PDF) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credits: Cover © a-image | Shutterstock.com Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2016 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. PREFACE – 3 Preface The last ten years have seen marked progress in our ability to capture, organise, store, and manipulate data. Operations that were once prohibitively time-consuming can now be completed in seconds. This transformation in the technical possibilities has created a whole range of opportunities for organisations with the wherewithal to understand, analyse, and act on the information at their disposal. Many tax administrations, including Ireland, are already using the wealth of information now available to them in order to better understand taxpayers and improve operational performance. As Commissioner, I am particularly conscious of our responsibility to fully utilise the external data sources available to us now, and those we will acquire in future, through third-party returns, real-time systems, supply chain data and international exchanges, especially given the administrative burden that these returns impose on individual taxpayers and businesses. However, the task of using this information effectively is not straightforward – “Big Data” does not automatically translate into “Big Improvements”. To capitalise on the opportunities available, administrations must solve a range of statistical, organisational, and technical problems. This report is about how tax administrations are extracting value from data using “advanced analytics”, a set of statistical techniques and practices that can help distil insight and clarity from masses of information. By applying advanced analytics techniques, tax administrations can begin putting their data to work to identify compliance and other risks, to tailor customer service, and to design more effective treatment and intervention programmes. The report is intended as a practical resource for managers and senior leaders looking to establish or further develop an analytics function within their administration. It begins by outlining how administrations are currently applying advanced analytics techniques, describing the operational problems being solved and discussing the analytic principles and procedures being applied. It goes on to discuss a number of organisational and technical considerations in ADVANCED ANALYTICS FOR BETTER TAX ADMINISTRATION: PUTTING DATA TO WORK © OECD 2016 4 – PREFACE the application of advanced analytics: how to integrate an analytics function into the wider organisation; how to prioritise, manage, and evaluate advanced analytics projects; how to resource projects with the right tools, technology, and – crucially – data. The report provides a range of practical case studies and examples of how advanced analytics has been deployed for better tax administration. I hope you will find the report prompts you to ask the right questions about how to use advanced analytics effectively, and points you toward the right answers for your administration. I believe that there is significant scope for further collaboration on these topics. The FTA provides a unique opportunity to share best practice and to draw on our combined resources to address issues of common interest. Tax administrations could seek – on a bi-lateral and multi-lateral basis – to develop closer project work, to second staff, and to collaborate on the development of capabilities in order to maximise the benefit of our extensive data resources. I also believe that there is scope for developing countries to learn from the experiences of developed countries in order to realise the potential of advanced analytics to bring about significant advances in modernising their tax systems. Finally, I would like to thank everyone who has been involved in producing this report: the teams in Ireland and the UK that led the work, the OECD Secretariat who supported and contributed valuable insights, and all the FTA member administrations who contributed their time and expertise to help make this an engaging and valuable document. Niall Cody Chairman, Office of the Revenue Commissioners Ireland. ADVANCED ANALYTICS FOR BETTER TAX ADMINISTRATION: PUTTING DATA TO WORK © OECD 2016 FOREWORD – 5 Foreword Tax Administration of the future series This report is one of three produced in 2016 by the FTA with a particular focus on how technological and business developments can be leveraged by tax administrations to help realise operational and programme efficiencies and improve their effectiveness. While the three reports have consistent themes around the use of data, changing customer expectations and the role of emerging technologies, they take different perspectives. • Advanced Analytics for Tax Administration: Putting data to work provides practical guidance on how tax administrations are using analytics to support compliance and service delivery. • Rethinking tax services: the changing role of tax service providers in SME tax compliance looks at developments in the domain of tax service providers and explores how tax administrations can better co-operate with them to improve outcomes for SME taxpayers. • Technologies for better tax administration: a Practical Guide for Revenue Bodies explores how tax administrations can utilise emerging technologies to further enhance their electronic services. It also offers a framework for administrations to assess the maturity level of these services. Caveat Tax administrations operate in varied environments, and the way in which they each administer their taxation system differs in respect to their policy and legislative environment and their administrative practice and culture. As such, a standard approach to tax administration may be neither practical nor desirable in a particular instance. Therefore, this document and the observations it makes need to be interpreted with this in mind. Care should be ADVANCED ANALYTICS FOR BETTER TAX ADMINISTRATION: PUTTING DATA TO WORK © OECD 2016 6 – FOREWORD taken when considering a country’s practices to fully appreciate the complex factors that have shaped a particular approach. Similarly, regard needs to be had to the distinct challenges and priorities each administration is managing. ADVANCED ANALYTICS FOR BETTER TAX ADMINISTRATION: PUTTING DATA TO WORK © OECD 2016 TABLE OF CONTENTS – 7 Table of contents Abbreviations and acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Chapter 1. Introduction to analytics use in tax administrations. . . . . . . . . . . . 15 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Report objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Chapter 2. Advanced analytics activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Advanced analytics activities by country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Advanced analytics for audit case selection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Advanced analytics for filing & payment compliance . . . . . . . . . . . . . . . . . . . . 24 Advanced analytics for debt management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Advanced analytics for taxpayer service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Advanced analytics for policy evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Advanced analytics for taxpayer segmentation. . . . . . . . . . . . . . . . . . . . . . . . . . 30 Chapter 3. Advanced analytics in the wider organisation . . . . . . . . . . . . . . . . . .31 Structural integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Cultural integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Chapter 4. Managing advanced analytics projects effectively. . . . . . . . . . . . . . 37 Project governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Project prioritisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Project management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Project evaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Change management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ADVANCED ANALYTICS FOR BETTER TAX ADMINISTRATION: PUTTING DATA TO WORK © OECD 2016 8 – TABLE OF CONTENTS Chapter 5. Resourcing advanced analytics projects: Tools & data. . . . . . . . . . 47 Advanced analytics tools – commercial and open-source options . . . . . . . . . . . 48 Access to the right data for advanced analytics. . . . . . . . . . . . . . . . . . . . . . . . . . 51 Chapter 6. Findings and recommendations for better use of advanced analytics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Tables Table 2.1 Summary of activities by country . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Table 5.1 Reported satisfaction with analytics tools along 4 key dimensions. 48 Table 5.2 Usage of and familiarity with analytics software and programming languages (self-reported). . . . . . . . . . . . . . . . . . . . . . 49 Boxes Box 1.1 What is “Advanced Analytics”?. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Box 2.1 Canada’s use of data mining models for non-filer programmes. . . . 25 Box 2.2 Text mining of inbound emails in Singapore . . . . . . . . . . . . . . . . . . 27 Box 2.3 China’s assessment of the impact of value-added tax reform. . . . . . 29 Box 4.1 Centralised governance of advanced analytics in Ireland . . . . . . . . 39 Box 4.2 Australia: Use of “weighted shortest job first” for project prioritisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Box 4.3 The Netherlands: Advanced analytics change management. . . . . . . 44 Box 5.1 New Zealand: Open source and innovation . . . . . . . . . . . . . . . . . . . 50 ADVANCED ANALYTICS FOR BETTER TAX ADMINISTRATION: PUTTING DATA TO WORK © OECD 2016