The principle of investigation as a challenge to fully automated procedures

1. Introduction

The automation of processes in administration has occupied jurisprudence since the 1950s.01 From the very beginning it was clear that automation was primarily considered in areas where calculations - e.g. of monetary claims - were involved.02 This has not changed until today.03 Whereas discussions used to focus primarily on so-called partial automation, today the focus is increasingly on so-called full automation.04 Recent discussions in Germany have focused on the full automation of the tax procedure. In Switzerland, the focus is on future full automation in the area of customs assessment, among other things. The corresponding legal bases are described below (2. and 3.). Although the two legal systems and the specific procedures differ, similar fundamental issues arise in both Germany and Switzerland. These relate in particular to ensuring the right to be heard and to safeguarding the principle of investigation. Therefore, the corresponding solution approaches are discussed separately in a 4th point. The conclusion is a conclusion (5.).

2. Germany: Law on the modernisation of the taxation procedure

On January 1, 2017, the German Act on the Modernization of the Taxation Procedure05 and thus the possibility of fully automated execution of the control procedure comes into force. With this law, the German Fiscal Code (AO)06 to the effect that tax authorities can automatically assess the taxes falling within the scope of the German Tax Code and electronically announce the resulting order.07 Core of the regulation of the exclusively automation-supported remission of tax administration acts form the §§ 150 Abs. 7 and 155 Abs. 4 AO (see 2.1.). These provisions are supplemented by the possibility of using risk management systems in § 88 Paragraph 5 AO (see 2.2.).

2.1 Exclusively automated issuing of tax administration acts

Since 1 January 2017, tax assessments as well as crediting of tax deductions and advance payments can be carried out exclusively by means of automation, provided there is no reason to have the individual case processed by public officials (§ 155 (4) sentence 1 AO). The same applies to administrative acts associated with tax assessments as well as credits for tax withholding contributions and advance payments (§ 155 (4) sentence 2 no. 1 AO). This means that all procedural steps within the administration can be carried out at any time without personnel processing.

Also the correction of tax assessments as well as credits of tax withholding contributions and advance payments or of administrative acts connected with these can be carried out fully automatically (§ 155 para. 4 sentence 1 or sentence 2 AO). In addition, ancillary provisions to the administrative act (§ 120 AO) can also be issued exclusively with the aid of automation, insofar as this is generally ordered by an administrative instruction of the Federal Ministry of Finance or the supreme state finance authorities (§ 155 Paragraph 4 Sentence 2 No. 2 AO). Insofar as such an administrative instruction has the effect that there is no discretionary scope for the decision on the ancillary provision (§ 5 AO), it can be issued fully automatically without any problems.

In some cases, the tax return must be processed manually. The personal processing can be triggered by the risk management system (§ 88 Paragraph 5 Sentence 3 Nos. 1 and 2 AO; see 2.2.), by appropriate selection of an official (§ 88 Paragraph 5 Sentence 3 No. 3 AO), or by entry of the taxable person in a "qualified free text field" (§ 155 Paragraph 4 Sentence 3 in conjunction with § 150 Paragraph 7 Sentence 1 AO).08 The latter allows to deviate from the clearly structured clear data input.

The basis for the fully automated procedure is formed by the data of the taxable person from the electronic tax return and the information already available to the tax authorities (§ 155 para. 4 sentence 1 AO). The second category also includes data transmitted to the tax authorities by third parties (§ 93c AO). The data transmitted by third parties is considered to be the data of the taxable person, unless the latter provides different information in a data field provided for this purpose in the tax return (§ 150 para. 7 sentence 2 AO). If the person liable to pay tax makes different entries in the field provided for this purpose, this leads to a modulation of the tax return and thus to an examination by public officials.09

The fully automatically generated tax administration act does not contain any indication that it was issued exclusively automation-supported. According to the explanations of the German Federal Government, such a tax administration act is not necessary, since no other legal consequences result from the fully automated administrative act than from a manually or partially automated tax administration act.10 After all, the taxpayer should be informed that his tax return can be processed completely automatically if he does not provide any information in the qualified free text field.11 Furthermore, the legal basis for exclusively automation-supported tax assessment does not provide for any explicit choice. The taxable person cannot choose whether his tax return should be processed fully or partially automatically. However, the qualified free text field (§ 150 Paragraph 7 Sentence 1 AO) in combination with the obligation to take account (§ 155 Paragraph 4 Sentence 3 AO) comes close to an option.

In § 155 Abs. 4 sentence 4 AO finally the decision-making about the decree of the administrative act and about his announcement at the time of the conclusion of the mechanical processing is faked as concluded. That is on the one hand of importance for the subsequent becoming known of facts i. S. d. § 173 Abs. 1 AO.12 On the other hand, the provision indirectly clarifies that administrative acts issued exclusively with the aid of automation are administrative acts within the meaning of § 118 sentence 1 AO.

2.2 Risk management systems

Tax assessment procedures carried out exclusively with the aid of automation require compensation for the associated reduction in the principle of investigation (§ 88 AO).13 This is to be achieved by the use of risk management systems. § Section 88 (5) sentence 1 AO therefore provides that the tax authorities may use risk management systems with the help of which cases with a significant risk can be filtered out and manually reviewed. According to § 88 Abs. 5 sentence 2 AO the principle of the economy of the administration is to be considered thereby also. The law requires that these risk management systems determine a sufficient number of randomly selected cases for comprehensive examination by public officials (§ 88 Paragraph 5 Sentence 3 No. 1 AO).

Furthermore, the law only provides for general minimum requirements: The risk management system must allow for the personnel examination of the outsorted cases and an additional personnel case selection (§ 88 para. 5 sentence 3 no. 2 and 3 AO). In addition, the risk management system must be reviewed regularly to ensure that it is fulfilling its objectives (§ 88 para. 5 sentence 3 no. 4 AO). Finally, it is provided that "details of the risk management systems" may not be published insofar as this could impair the uniformity and legality of taxation (§ 88 para. 5 sentence 4 AO). For the taxes administered by the state tax authorities on behalf of the federal government, "the supreme tax authorities of the states shall, in agreement with the Federal Ministry of Finance, lay down the details of the risk management systems to ensure uniform enforcement of tax laws throughout Germany".14.

3rd Switzerland: Introduction of automated individual decisions as part of the total revision of the Data Protection Act

As part of the total revision of the Data Protection Act (DSG)15 the legislator is planning the possibility for federal bodies to make automated individual decisions (Art. 19 para. 4 E-DSG; cf. 3.1.) This is confirmed in the Customs Act, among other things, by the addition of a provision according to which certain orders may be issued as automated individual decisions within the meaning of Article 19 (4) of the E-DSG (cf. 3.2.).

3.1 Automated individual decisions in accordance with Art. 19 para. 4 Draft Law

In Article 19 of the draft data protection act (E-DSG)16 an obligation to inform is now established for automated individual decisions which entail a legal consequence for the data subject or significantly disadvantage him or her (Art. 19 para. 1 Draft Law on the Protection of Individuals with regard to the Processing of Personal Data). In addition, the data subject is given the opportunity to express his or her point of view if he or she so requests, and he or she may request that the decision be reviewed by a natural person (Art. 19 para. 2 Draft Law). For federal bodies, para. 4 contains a labelling requirement for automated individual decisions. In its dispatch, the Swiss Federal Council specified that this would involve the issuing of decrees.17 Automated" means that "no substantive assessment and decision based thereon has been made by a natural person".18.

In its dispatch, the Swiss Federal Council therefore distinguishes between two steps: firstly, the assessment of the facts and secondly, the decision based on this assessment of the facts.19 If both steps are carried out without human intervention, resulting in an order, then it is an automated individual decision within the meaning of Art. 19 para. 4 Draft Law. What is meant here are fully automatically issued orders (which in German terminology corresponds to "administrative acts issued exclusively by means of automation").20

The possibility for the data subject to express his or her views or to request a review by a natural person (Art. 19 para. 2 Draft Law) also applies in principle to decrees issued fully automatically by federal bodies (federal authorities or federal agencies or persons entrusted with federal public duties, cf. Art. 4 letter h Draft Law). However, under Art. 19 para. 4 sentence 2 of the Draft-DSG, this possibility does not apply in cases under Art. 30 para. 2 VwVG, i.e. in those cases in which an exception to the consultation obligation under Art. 30 para. 1 VwVG is provided for.21

Even if the regulatory content of Art. 19 para. 4 Draft-DSG thus tends towards zero, it can at least be stated at this point as an interim conclusion that the federal legislator intends to recognise the possibility of fully automated decrees by adopting the totally revised DPA. This does not mean, however, that federal bodies will henceforth be able to issue fully automated decrees in every area of administrative activity without further legal adaptation. Rather, it follows from the principle of legality (Art. 5 para. 1 of the Federal Constitution in conjunction with Art. 164 para. 1 letters b and g of the Federal Constitution) that a formal legal basis must be created for the fully automated issuance of a ruling, which also meets the requirements of the density of standards. Art. 19 para. 4 Draft Law does not meet these requirements.22

3.2 Automated individual decisions in the field of customs assessment

As part of the total revision of the DSG, the provisions on assessment under the Customs Act (ZG)23 supplemented by a reference to Art. 19 E-DSG.24 Corresponding additions are also required for the determination of tax amounts under the Tobacco Tax Act (TStG)25according to the Mineral Oil Tax Act (MinöStG)26 and according to the beer tax law (BStG)27as well as for the determination of the heavy vehicle fee according to the Heavy Vehicle Fee Act (SVAG)28 is provided for. However, since the ZG is applied in each case in these procedures,29 only the customs assessment procedure is outlined in more detail below.

According to Art. 38 (2) Draft Law on Administrative Procedure, the customs office can issue the assessment ruling in future as an automated individual decision within the meaning of Art. 19 (4) Draft Law on Administrative Procedure. Already today there are extensive digitalisation possibilities in the customs assessment procedure. The fully automated customs assessment decision is a logical consequence of this, as it is practically seamless.

The customs assessment procedure (Art. 18 ZG) can be divided into four steps:30

1. The summary examination procedure (Art. 32 ZG)
2. Acceptance of the customs declaration (Art. 33 ff. ZG)
3. The inspection and examination (Art. 35 and 36 FAD)
4. The assessment, including the issuance of the assessment order (Art. 38 ff. FC)

In the case of electronic customs declarations, the first step, the summary examination, is carried out directly by the system (Art. 84 lit. a ZV31; Art. 16 ZV-EZV32). In this case, however, the system does not check whether the imported goods correspond to the customs declaration and whether the required accompanying documents are available.33 Once the electronic plausibility check is complete, the data processing system automatically adds the acceptance date and acceptance time to the electronic customs declaration (Art. 16 ZV-EZV). The customs declaration is thus deemed to have been accepted (Art. 16 ZV-EZV). It is binding on the person who is obliged to make the declaration (Art. 33 (1) FCA). Up to this point, the procedure for electronic declarations already runs without human intervention by the authorities. Only when the procedure is triggered (via electronic registration) does a person take action, namely the person required to register.

The customs office "may" then "examine" the declared goods comprehensively or by sampling (Article 36(1) CCC). According to Art. 35 ZG, which became necessary with the creation of the electronic customs declaration34In addition, the customs office "may" check the accepted customs declaration and the accompanying documents at any time during the assessment procedure (paragraph 1) and request further documents from the person required to make the declaration (paragraph 2). For this purpose, the computerised system carries out a selection based on a risk analysis (Art. 17 (1) ZV-EZV).35 The system transmits the result of the selection directly to the person subject to notification.36 If the goods are released, the person required to declare must provide the customs office with a printout of the customs declaration and the necessary accompanying documents (Art. 17 (3) ZV-EZV). However, in view of the "may" wording of Art. 35 FCA, the customs office will not check the information in every case. The same applies to the "may" wording of Art. 36 FCA. Under certain circumstances, human intervention may not take place at this stage of the procedure either.

The last step of the procedure is the issuing of the assessment ruling (Art. 38 et seq. FCA). The assessment ruling does not have to meet the formal requirements of Art. 5 VwVG.37 It can be issued on paper or electronically (Art. 92 ZV). The electronic assessment ruling is opened by connecting the ruling to the computer system used for the customs declaration (Art. 20a ZV-EZV). The levy is determined by the customs office on the basis of the rates of duty and bases of assessment at the time of acceptance of the customs declaration (Art. 33 ZG).38

If in future the customs will actually make an assessment in the form of a fully automated decision, the authority must mark the decision accordingly in accordance with Art. 19 para. 4 DDA so that the person concerned can recognise that it was made automatically.39 The purpose of the labelling obligation under Art. 19 para. 4 of the E-DSG is to enable the person concerned to exercise their right to be heard.40 However, in the context of the customs clearance procedure, marking does not bring any discernible added value.41 On the one hand, due to the self-declaration principle, the person required to declare is in any case centrally involved in the determination of the facts. On the other hand, the introduction of the electronic customs declaration as a compensation for the increased degree of personal responsibility assigned to the declarant has already improved the possibilities for correcting customs declarations already accepted (Art. 34 CC).42

In the context of full automation, however, another requirement, which has also been enshrined in law in connection with the introduction of electronic customs declarations, could gain additional importance. According to Art. 42 (3) ZG, the simplification of the assessment procedure or the transfer of responsibility to the person required to make the declaration must not result in the tax security being jeopardised.43 This means that the state must not hand over responsibility for the correct execution of the customs assessment. This also applies in the context of full automation and requires that appropriate controls are carried out. However, it is unclear how this is to be implemented in the context of full automation.

4. fundamental questions

Both types of proceedings outlined above are characterized by the fact that they usually involve bound decisions. Furthermore, due to the self-declaration principle, in both proceedings the determination of the facts of the case is largely entrusted to the person subject to tax or registration. Furthermore, the facts of the case can largely be recorded in a standardised form (specification of amounts, dates or goods or customs tariff numbers). These are all prerequisites that strongly favour full automation.44 Both the German taxation procedure and the Swiss customs assessment procedure also show possibilities for implementing the right to be heard - at least for certain procedures (see 4.1.). At the same time, safeguarding the principle of investigation is a major weakness which no regulation has yet satisfactorily resolved, albeit for different reasons (cf. 4.2.).

4.1 Right to be heard

Art. 29 para. 2 BV, the right to be heard by a court of law, provides, among other things, for the right of the persons concerned to express their views on the matter before a decision is taken (right to be heard in the sense of the law).45 The fully automated issuing of an injunction severely limits the possibilities for prior comment. In the case of injunctions requiring cooperation, it amounts to a far-reaching shift of the investigation of the facts to the person making the request. In order for the details of the person concerned to be processed fully automatically, they must be recorded in a standardised form. This becomes problematic at the latest when the person making the request wishes to add explanations or information that cannot be entered in a standardized input form.

A look at the regulation in the German tax code shows that this problem can be taken into account by the legislator, in the form of the "qualified free text field" mentioned above (cf. 2.1.).

In Switzerland, such a free text field is not provided for the procedures under the ZG. However, with the expansion of the correction possibilities in the course of the digitisation of the procedures, a path has been taken which could also prove to be a possibility for implementing the right to be heard in the sense of the law within the framework of full automation.

While this solution seems to be suitable for customs assessment as a mass procedure with a high degree of standardisation, it is, however, rather unsuitable for dispositions based on data that can be collected in a less standardised way. On the one hand, this is simply because the issuing authority should have received all the necessary information in full before issuing the order. However, this only works if the information can actually be provided in the context of standardised entries. On the other hand, however, it also works because although the person concerned may be able to easily identify errors in customs assessment procedures due to a discrepancy between the expected and levied amount of customs duty, this may be much more difficult in other procedures. In this case a "qualified free text field" based on the model of the German Tax Code would probably be more suitable.

4.2. principle of investigation

The fully automated issuing of an order leads - at least in the case of orders requiring cooperation - to a shift of the investigation of the facts to the person concerned (cf. 4.1.). However, a complete or at least extensive shift of the investigation of the facts to the person concerned is not easily compatible with the principle of investigation.46 Indeed, the principle of investigation reflects the fact that the Authority bears ultimate responsibility for the decision.47

German tax procedure law provides for the use of risk management systems to ensure the principle of investigation within the framework of fully automated taxation procedures in § 88 (5) AO (German Tax Code) (see 2.2.). The risk management systems provided for in the AO are intended to filter out cases with a significant risk so that they can be checked manually. However, little is known about the exact functioning of these risk management systems, especially since the law already stipulates that "details of the risk management systems" may not be published. However, there is some evidence that these risk management systems are - at least in part - based on machine learning processes.48

The use of risk management systems is problematic in several respects. It leads to a shift: the principle of case-by-case assessment is being replaced by an automation-supported risk assessment.49 For fully automated tax assessments, this means that the tax authorities can no longer fulfil their duty to advise and inform. However, the principle of investigation also includes an official care and support function with regard to the legal position of the taxpayer.50 The taxpayer is therefore at a disadvantage compared to processing in the manual procedure. This is also not (fully) compensated for by the risk management system, since the primary aim of the system is to avoid tax evasion.

Cause for criticism also § 88 exp. 5 sentence 2 AO, according to which the principle of the economy of the administration is to be considered. Background of the legal anchorage and/or the criticism practiced at it is a discussion already longer continuing around the question whether the investigation principle permits the consideration of economic efficiency aspects in such a way that the relationship of investigation expenditure to the fiscal additional result is considered.51 Even if the reasoning of the German government is reserved in this respect,52 the wording of the law allows the economic aspects now enshrined in law to be understood in such a way that cases with low tax potential cannot be handled by personnel.53 However, this must be firmly rejected.

The type and scope of investigations must not be geared to the financial default risk, but must be based on the need for verification.54 Of course, this does not mean that the tax authorities do not have to observe the principle of economic efficiency within the framework of law enforcement.55 It is recognised in case law that the financial authority's duty to provide information may be limited by considerations of expediency and economic efficiency.56 However, this does not mean a maximum economic principle - in the sense of an economically optimal cost-benefit ratio.57 Rather, the principle of equal taxation requires that the risk of illegal tax assessment be minimised.58

Furthermore, the requirement that risk management systems must ensure manual selection of cases for examination by public officials (§ 88 (5) sentence 3 no. 3 AO) must be critically reviewed. The legislator leaves open on the basis of which criteria the cases can be selected. It also remains unclear what objective is pursued with a manual case selection.59 In the literature, there have been isolated instances in connection with risk management systems where it has been stated that a selection of personnel is important in order to take into account the experience and knowledge of the persons responsible.60 However, this argument becomes obsolete with a fully automated tax assessment, as the person processing the case is not given the opportunity to contribute his or her knowledge based on a concrete tax return. The question therefore arises as to the advantages of manual case selection for maintaining the principle of investigation.

The control of risk management systems, which is only inadequately regulated by law, is also problematic.61 § Section 88 (5) sentence 3 no. 4 AO merely prescribes a "regular review of the risk management systems with regard to their goal fulfilment". Who must carry out this check is not defined in more detail by law.

Finally, "details of risk management systems" may not be published (Section 88 (5) sentence 4 AO). On the one hand, this requirement is understandable. The uniformity and legality of taxation would be jeopardised if tax citizens were aware of the criteria or the way risk management systems work and could thus circumvent these filters.62 On the other hand, the regulation leaves open what the "details" mentioned are. Is it about the algorithms used in the risk management systems? Or does it refer to test parameters, such as exceeding certain value limits, changes compared to the previous year or logical contradictions in the tax return?63 Or does it (also) include personal data on the basis of which the risk of a taxable person or a tax return is assessed? If the latter is meant, it should be noted that the person concerned therefore has no indication what personal information the risk management system uses and whether it is correct. This violates the data subject's right to informational self-determination and considerably limits his or her possibilities for legal protection. Furthermore, it is not possible to check whether the information used is at all useful. For example, the system could also take into account criteria such as religious affiliation or gender. Or should the tax compliance of the tax advisor be taken into account?64 In this case, it would have to be examined whether this does not interfere with the fundamental right of freedom to practise the profession.65 Overall, the state use of algorithms faces the great challenge of justifying or, if possible, compensating for the lack of transparency and the associated conflicts with data protection principles and the right to informational self-determination.66

And what about the implementation of the principle of investigation in the Swiss customs assessment procedure? It is true that Art. 42 (3) ZG states that the simplification of the assessment procedure must not jeopardise the security of the duty. The legislator leaves open how exactly the controls should be carried out in the case of a fully automated customs assessment. It is therefore unclear whether or how the responsibility of the state for the lawful execution of the customs assessment is ensured. Even if the German solution with risk management systems can be criticised to some extent, the basic approach is still a viable option. Especially in the case of mass enforcement, it may not be possible or necessary to achieve 100 percent administrative security of enforcement. An obligation to ensure structural enforcement seems sufficient.67 However, this does not absolve us from designing the risk management systems used in accordance with the constitution.

5. conclusion with regard to the customs assessment procedure

The will of the Swiss legislator for more automation in the customs assessment procedure is not surprising. The total revision of the customs law already established important milestones towards digitalisation and thus automation of the customs assessment procedure. The fully automated issuing of the customs assessment order seems to be a logical consequence of this development. Ensuring the right to be heard within the framework of a fully automated customs assessment procedure seems to pose few problems, particularly in view of the self-declaration principle and the extended possibilities for correction (Art. 34 FAD). Any need for optimisation could be covered by offering a qualified free text field based on the example of German tax procedure law. On the other hand, it is still unclear how the principle of investigation in the fully automated customs assessment procedure can be safeguarded. There is a need for action here. The legislator has to clarify how the checks are to be carried out in a fully automated customs assessment procedure.