The IP address as an element to prevent fraud in tax returns

In most contemporary tax Administrations, the tax declarations are filed digitally[1], thus evidencing a leap in quality in terms of the use of technology for support, as well as improving internal processes and the provision of services to facilitate compliance.

In this way, with the proper use of the flow of self-declared information, electronic invoicing, plus the data provided by third parties, has allowed some tax administrations to offer the service of pre-filled tax returns, also called: draft, pre-elaborated, shadow or suggested (CIAT, 2019), which undoubtedly constitutes a great advance in facilitation.

Now, given the importance of the data, how do you know if it is the taxpayer himself (or his legal representative) who is really making the presentation? and when fraud is detected in these, who is the person responsible for the crime?

Anonymity in digital filings can be a factor that facilitates the commission of frauds to the detriment of public revenues and in cases where the user’s private data has been stolen, it will also affect the taxpayer himself. Through the IP address it is possible to mitigate these risks since it allows to identify the place from where the submission originates.

Therefore, with proper implementation, the strategy of identifying with due precision the person responsible for issuing the declaration through the IP address, could be an effective fraud prevention tool.

THE MOST COMMON FICTIONS

Although there is a wide and almost infinite spectrum of fraud maneuvers to reduce taxation, the use of false or apocryphal invoices, simulating economic acts or their values, has become the most common scourge and occupies a large part of the control and prevention action.

The different actions taken by the comptroller may cause to adapt the behaviors, with the deliberate encouragement of being off the radar, which in turn generates new and stronger controls in a vicious loop feedback, with demands that often complicates the task of the compliant taxpayers who want to be in order.

In this sense, the submissions of returns with economic substance adequate to the control parameters are a characteristic element of these structures used for fraud.

In addition, falsehood in declarations has also been seen in situations where a third party tries to harm the situation of a taxpayer, presenting excessive tax balances to be paid or externalizing movements or bulky and non-existent assets.[2] This can usually be seen in cases of theft, hacks[3], phishing[4] and other improper expropriations of tax keys or passwords, as well as in the case of advisers, employees and even spouses, who have been disconnected or defrauded.

THE RELEVANCE OF THE IP ADDRESS

The IP address makes it possible to identify a device on the internet or on a local network (computer, notebook, phone, etc.), using a numerical label.

These addresses can be fixed or dynamic: the fixed addresses do not change over time, while the dynamic ones can change often due to changes in the network, or because it is configured for that purpose.

For tax purposes, a correct identification of the physical place and the device where a presentation has been filed allows knowing with a greater degree of certainty the authorship and responsibility of the submitter. This identification is a substantial element for the audit process, when gathering evidence to discover the simulation and its material authors.

As a consequence, an adequate identification of the IP address’ ownership with the tax return submitted will act preventively against fraud due to the risk of location that this implies.

In Argentina, the taxpayer has the possibility to see in his security profile the IP addresses from where his declarations have been submitted, which allows him to conduct a control of his presentations.

However, it is possible to navigate by hiding the location through simple configuration procedures in browsers or using extensions, VPN or Proxy that allow faking the real location, as if the connection were made from another country.

The latter implies the true challenge for the administrations, since those who have structured themselves to undertake the simulation will surely try to hide their identity so as not to be discovered, relying for this on tools that are easy to access and manage.

FINAL WORDS

Knowing with an adequate degree of certainty the place and the person who has made a presentation for tax purposes digitally is undoubtedly a circumstance that provides transparency in the validity of the information.

The definition of a strategy based on these risks should involve the use of fixed IP addresses, endorsed and previously associated with the user of the key or PIN by self-declaration or by third parties, which would be used for the presentation of the digital declaration.

In this way, by preventing the presentation from an IP unknown by the person in charge, fraud maneuvers outside his or her will could be avoided, as well as preventing simulation maneuvers, due to the risk of having the location of the presenter revealed.

However, the implementation of such a strategy should consider the scope of local rules on the secrecy of communications and their jurisprudence.

Finally, the action should address with simplicity and automatization the factual situations that could complicate the operation of taxpayers, who comply with their tax submissions voluntarily and correctly.[5]

[1] “ICT as a Strategic Tool to leapfrog the Efficiency of Tax Administrations”
[2] ” DECLARACIONES JURADAS APÓCRIFAS” PRESENTADAS POR UN TERCERO CON EL OBJETO DE PERJUDICAR A UN CONTRIBUYENTE. Errepar 2008. GUASCH, BOZZONE, VADELL, RODRIGO BECCARIA, CHIARELLO
[3] Illegally accessing and manipulating other people’s computer systems
[4] Scam that consists of obtaining through the Internet private data of users.
[5] The current development of communications technology and large-scale data management could make an ideal fiscal use feasible, as explained in chapter 15 of the document “ICT as a Strategic Tool to leapfrog the Efficiency of Tax Administrations” – CIAT, 2020.

Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

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