1. Introduction

In the last decade, the digitalization of tax administrations in Latin America and the Caribbean (LAC) has advanced significantly. The implementation of the electronic invoice has been one of the most important milestones in this process, without neglecting the implementation of the electronic registry of taxpayers., electronic declarations and electronic payment [1], Consequently, this will generate improvements in tax collection and a reduction in tax evasion. However, it is important to highlight that digital transformation goes far beyond the digitization of documents (invoices, returns, among others) [2]. This is a structural change that redefines the relationship between taxpayers and tax administrations through the use of emerging technologies such as data analytics, cloud computing, artificial intelligence and blockchain.

As is well known, when we currently refer to the digitalization and digital transformation of the Tax Administration, we must point out the concept of Tax Administration 3.0, as the goal to be achieved by LAC tax administrations, which refers to a modern tax ecosystem based on automation, interconnectivity and advanced data analysis. Unlike traditional models, which rely heavily on manual intervention and bureaucratic processes, Tax Administration 3.0 relies on digital technologies to improve efficiency, transparency and transparency and tax inclusion [3].

For example, in the region, countries such as Brazil [4], Chile [5] and Mexico [6] have led the implementation of advanced digital platforms for tax management. These initiatives have allowed the automation of key processes, the integration of databases and the generation of predictive models that facilitate the detection of tax fraud.

However, there are still significant challenges in terms of interoperability, regulation and equitable access to technology. [7]

2. Difference between digitalization and digital transformation

While digitalization is an important step in the modernization of tax administrations, it should not be confused with digital transformation.. Digitalization refers to the conversion of analog processes to digital, such as the use of electronic statements and invoices instead of paper documents.. On the other hand, digital transformation implies a complete reconfiguration of processes and operating models through the strategic use of digital technologies.

While digitalization optimizes existing processes, digital transformation creates new ways of interacting with taxpayers, improves the user experience and enables the development of intelligent and automated tax systems.

3. Practical application of advanced techniques and strategies to improve tax compliance and innovative technological solutions in tax aministrations of Latin America and the Caribbean. (LAC)

The report entitled “Overview of Tax Administrations in CIAT Countries. Results of the ISORA 2023 Survey. Volume I” with data from the year 2022, published by the Inter-American Center of Tax Administrations (2025) highlights that, in view of the need to accelerate the digital transformation of tax administrations in Latin America and the Caribbean (LAC) and in order to make the most efficient use of available resources, in addition to the implementation of traditional digital instruments (electronic registry, electronic declarations, electronic payment, etc.), a series of: 1) Strategies to improve compliance and 2) Innovative technological solutions to improve tax management in a comprehensive manner [8].

Accordingly, as indicated in this document, the countries of Latin America and the Caribbean (LAC) have implemented both the following strategies to improve compliance and the following innovative technological solutions to comprehensively improve tax management (expressed as a percentage of the total number of countries in LAC). Simple averages for selected groups of LAC countries. Year 2022:

3.1 Strategies to improve compliance:

• Cooperative compliance approach: for large taxpayers (52.9%), for high-net-worth taxpayers (19.6%) and for other types of taxpayers (37,4%).
• Mandatory electronic invoicing (partial or total) (44,1%).
• Tax returns pre-filled by the tax authorities (44,1%).
• Requirement for electronic fiscal devices (26,5%).

3.2 Innovative technological solutions to improve tax management in a comprehensive manner

• Data science and analytical tools (70,6%).
• Application programming interfaces (67,6%).
• Cloud computing (44,1%).
• Government identification systems (41,2%).
• Virtual assistants (38,2%).
• Digital identification technology (38,2%).
• Artificial intelligence (23,5%).
• Robotic process automation (23,5%).
• Distributed registry and blockchain (11,8%).

Most of these practices are part of both digitalization and digital transformation. As we noted earlier, while digitalization converts manual processes into digital ones such as mandatory electronic invoicing (partial or total) and pre-filled returns by the tax administration, digital transformation (the rest of advanced strategies) reconfigures the tax administration’s operability with a taxpayer-centric approach.

The following is an overview of the implementation of each of the advanced techniques and strategies aimed at improving tax compliance in the tax administrations of Latin America and the Caribbean (LAC). These strategies are based on innovative technological solutions that promote efficiency, transparency and tax collection.

Pre-filled declarations: It consists of the use of information previously collected by the Tax Administration, such as income and deductions, to automatically complete tax returns in electronic format. This strategy, framed within the digitalization process, facilitates compliance by taxpayers, who only have to review and confirm the information provided.

Mandatory electronic invoicing: Enforcing the use of electronic invoices by taxpayers contributes to administrative efficiency, reduces the use of paper and allows real-time monitoring of commercial transactions. This measure, aligned with digitalization, increases transparency and prevents tax fraud.

Electronic fiscal devices: This refers to the obligation to use devices that record and transmit sales and transactions electronically to the tax administration. This mechanism strengthens transparency and optimizes collection through real-time monitoring.

Cooperative compliance for large taxpayers or other types of taxpayers: This approach promotes a collaborative relationship between the tax administration and, for example, large taxpayers, with the objective of encouraging voluntary compliance through dialogue and agreements.. Digitalization and digital transformation facilitate this process by enabling efficient information exchange and better tax risk management..

Data science and analytical tools: The application of big data analysis allows the detection of patterns that may indicate possible cases of tax fraud. Digital transformation in this context improves the ability to predict and prevent tax non-compliance.

Cloud computing: This technology optimizes data storage and processing, facilitating access to information from different locations and improving the internal management of the Tax Administration. It also allows for efficient interaction with taxpayers, ensuring timely access to tax services.

Artificial intelligence (IA): AI is used to automate processes and improve decision making within the tax administration.. Its application includes pattern recognition, natural language processing and the generation of predictions about taxpayers’ tax behavior.

Distributed registration and Blockchain: Although this implementation is still in the development phase in some LAC tax administrations, blockchain technology has the potential to strengthen transparency and security in tax transactions. Its application covers electronic invoicing, traceability of foreign trade operations, digital identity and automation of payments and returns through smart contracts.

Robotic process automation (ARP): PRA enables the automatic execution of repetitive tasks, such as transferring data between systems, which increases operational efficiency and frees resources for more strategic functions within the Tax Administration.

Application programming interfaces (APIs): The implementation of APIs facilitates integration and communication between different systems, improving the interoperability and efficiency of administrative processes. These interfaces allow applications to exchange information in a secure and structured manner, ensuring the protection of sensitive data.

Government identification systems: Identity verification through digital systems contributes to the prevention of fraud and the assurance of tax compliance, strengthening the control mechanisms of the tax administration.

Digital identification technology: Its implementation improves security and authentication in tax processes related to management, collection and inspection, reducing the risks of fraud and identity theft.

Virtual assistants: The use of chatbots or virtual assistants allows providing automated support to taxpayers, answering queries and guiding them through the tax compliance process. These solutions can use machine learning algorithms to improve interaction and service quality.

In short, the implementation of all these strategies and technological tools in the tax administrations of Latin America and the Caribbean (LAC) represents a significant advance towards the modernization and efficiency of tax systems. On the other hand, as mentioned above, it is evident that the digitalization and digital transformation of the tax administrations in LAC goes beyond the implementation of electronic invoicing. While it is true that electronic invoicing in LAC is a worldwide benchmark in the digitalization phase, progress towards digital transformation transcends the implementation of electronic invoicing. Therefore, the integral ecosystem of digitization and digital transformation plays a crucial role in improving tax compliance, ensuring a more effective and transparent management of the tax system.

4. Confidentiality and privacy of tax data, and bias in algorithms.

When we refer to the digitalization and digital transformation of the tax administration in LAC, we cannot overlook the intensive use of data and algorithms by the tax administration, as this poses significant challenges in terms of privacy and information security. Personal data protection and cybersecurity must be priorities in this process of digitization and digital transformation.

In addition, the use of algorithms in Artificial Intelligence (AI) for tax inspection functions may generate biases if the predictive models are not designed with ethical and transparent criteria. It is essential that tax administrations implement mechanisms such as algorithmic auditing and ensure fairness in the use of technology to protect taxpayers’ rights.

5. Conclusion

The digitalization and digital transformation of tax administrations in Latin America and the Caribbean (LAC) is key to improving tax efficiency and transparency. However, its implementation goes beyond the simple digitization of documents (such as, for example, the electronic invoice) and should focus on a comprehensive restructuring of tax processes. Data science, cloud computing, artificial intelligence, blockchain, among others, are essential tools in this change. However, their use must be ethical and responsible to ensure security and fairness in tax management, always protecting the rights and guarantees of taxpayers.

[1] “Advances in Information and Communication Technologies (ICT) were decisive in the modernization of tax administration processes. Although these technologies were initially introduced mainly in the collection function (taxpayer registries, receipt of payments, payment declarations, etc.), they have also been used in the tax administration. They were disseminated to all the processes used in the basic functions of these entities (taxpayer service, auditing, collection and legal function)”. Inter-American Center of Tax Administrations (2023). Quo vadis, tax administration? Barreix, A. Martín, B. Roca, J. Díaz. S y Zambrano R. Pág. 30. https://www.ciat.org/Biblioteca/DocumentosTecnicos/Espanol/2023-Quo-vadis-CIAT.pdf

[2] By 2018, Alberto Barreix and Raul Zambrano in a paper entitled “The Electronic Invoice in Latin America; process and challenges” point out that the electronic invoice could also be considered as an instrument of the third industrial revolution (computing, internet and telecommunications; Schwab, 2016) based on the generation and dissemination of data. In addition, they indicated that “Most likely, the Electronic Invoice” would be the spearhead for the advancement of the digitalization of other taxes, such as the widespread use of electronic payroll, and as a new instrument for the control of non-compliance via risk analysis. Page 4.

https://www.ciat.org/Biblioteca/Estudios/2018_FE/cap1-1_bareix_zambrano.pdf

[3] In summary, we have gone from a Tax Administration 1.0 (Traditional Model) characterized by its dependence on paper and the execution of multiple manual processes, which generates inefficiencies and a greater administrative burden for both taxpayers and tax authorities. This model involves fragmented communication between the different actors in the tax system and data collection based on ex post returns and audits, which limits the capacity for early detection of non-compliance.

Then, we have gone through the Tax Administration 2.0: (Digital Transition) which is characterized by the advancement of technology and the digitalization of the economy. Therefore, tax administrations have adopted electronic systems to improve collection efficiency and effectiveness. Tax Administration 2.0 is based on the automation of processes, the use of digital platforms for tax filing and the exchange of information between different government and private sector entities. This model has allowed for greater transparency, cost reduction and improved tax compliance through mechanisms such as electronic invoicing and database interoperability..

Currently, we are in Tax Administration 3.0 (Digital Transformation: Towards Smart Taxation), i.e., the evolution towards Tax Administration 3.0 implies an even greater integration of technological systems in the taxation process. In this model, taxes are incorporated directly into the “natural systems” of taxpayers, i.e., into the platforms they use to operate their businesses and carry out transactions.

Through artificial intelligence, big data and blockchain, an initiative-taking and real-time tax administration is sought, reducing administrative burdens and improving collection. Tax Administration 3.0 allows bringing taxation closer to taxable events as they occur, avoiding discrepancies and promoting fairer and more efficient taxation. In addition, this approach helps to reduce tax evasion and optimize tax debt management, minimizing the compliance burden for taxpayers.

https://www.oecd.org/es/publications/2020/12/tax-administration-3-0-the-digital-transformation-of-tax-administration_886337a7.html

[4] https://www2.deloitte.com/mx/es/pages/tax/articles/disrupcion-tencologica-en-impuestos.html?utm_source=chatgpt.com

[5] https://publications.iadb.org/es/transformacion-digital-en-las-administraciones-tributarias-de-america-latina-chile?utm_source=chatgpt.com

[6]https://www2.deloitte.com/mx/es/pages/tax/articles/disrupcion-tencologica-en-impuestos.html?utm_source=chatgpt.com

[7] The CIAT publication entitled “ICTs as a strategic tool to enhance the efficiency of tax administrations” (CIAT, 2020), contains a set of experiences and practices from different member countries, particularly from Latin America.  The report notes that there are significant differences in the approach and degree of development of digitalization and digital transformation solutions applied in different countries. Larger economies with larger tax administrations in South America and Mexico have gradually improved their information systems over the years. Smaller economies have implemented customized solutions developed by third parties. Many Caribbean countries have adopted COTS packages. Some of these implementations in smaller tax administrations without strong internal development capabilities have been financed with loans from development banks.

In terms of registration, some tax administrations have managed to implement fully online registration processes, while others have a mixed approach where, while some physical interaction is still required for registration, information can be updated directly online..

Regarding the filing of tax returns, CIAT has noted that electronic filing of tax returns is widely available and that in some countries this filing channel is the only one available. Pre-filed personal income tax returns are available in several countries, including at least Argentina, Brazil, Barbados, Chile, Colombia, Ecuador, Mexico, and Paraguay. In Brazil, based on the SPED system, companies subject to the general regime no longer need to file a tax return, since the tax administration already has all the relevant tax and accounting information to assess the tax. Online withholding certificates have been implemented, for example, in Paraguay, where all certificates are reported or submitted to the tax administration.

A significant development in the region is electronic invoicing systems, in which all invoices that would involve credits on purchases are transmitted to the tax administration at some point, either shortly after the transaction or even before the transactions are completed. More than a dozen countries have robust and sustainable e-invoicing systems, including Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Peru and Uruguay.; others, such as the Dominican Republic, Panama and Paraguay, have begun to implement the system, while El Salvador is in the pilot project phase. https://www.ciat.org/Biblioteca/Estudios/2020_TIC-CIAT-FBMG.pdf

[8] Garcimartin, C. and Díaz de Sarralde Míguez, S. (2025). Overview of tax administrations in CIAT countries. Results of the ISORA 2023 Survey. Volume I (annual questionnaire). Inter-American Center of Tax Administrations. (CIAT).https://www.ciat.org/Biblioteca/Estudios/2025_panorama_AT_ISORA_CIAT.pdf