The digital tax administration

1. Introduction

The coronavirus crisis, at the latest, is likely to have made it clear to many people what a decisive difference digitalisation can make: While "analogue" shops and restaurants had to close from one day to the next, competitors with an online shop were able to continue their business practically without interruption.01 Employees of administrative offices that had digitized their processes and workplaces were able to work smoothly from home, while other offices were sometimes practically paralyzed.

There is no doubt that the coronavirus crisis will give a further boost to digitisation. Suddenly, things are becoming possible that have not been possible before.02 The tax authorities in Switzerland were already working on the digital transformation before the crisis, albeit in a well Swiss federalist manner with different speeds and thrust. It is to be assumed that Corona will also provide additional impetus for this work.

This article examines why and where digitisation makes sense for a tax authority, what opportunities it opens up and what (new) questions arise.  

2. what does digital mean?

Digital is the opposite of analog. Digitizing describes the replacement of the analog with the numerical. It creates virtual copies of reality. Digitization transforms atoms into bits: books made of paper become series of numbers that are made readable with an e-book reader. The shop around the corner becomes an online store. Everything digital is always a certain finite sequence of the numbers 1 and 0. The form, the matter, the external appearance, the physical no longer plays a role.

Humans are analogue, they can only understand digital data with the help of technical aids. This may explain why many people are still sceptical about digitisation. However, digital processes have so many decisive advantages over analogue processes that they are becoming increasingly popular: There is no other way to generate, transmit, make available and store data so easily and cost-effectively.

3. challenges for the tax authorities

The tax authorities are also increasingly focusing on digitisation. However, digitisation cannot and must not be an end in itself. Digitisation is not an all-purpose tool. But digitisation offers answers to many of the challenges that the tax authorities - as well as companies - face:

• Changing needs and expectations of customers
• Technological developments and associated changes
• Increasingly complicated tax regulations that require more data and greater enforcement effort
• Rising investment figures due to social developments and population growth
• Different working methods and attitudes of a younger generation of employees
• Increasing globalisation, which demands greater networking and data exchange
• In particular for the administration the requirement to use taxpayers' money economically and efficiently.

All cantonal tax offices and the Federal Tax Administration (FTA) are faced with these and other challenges in a similar way, which is why digitisation is an issue everywhere. However, since the conditions and needs are different, the development is not uniform. The example of the Canton of Berne is used to illustrate the two most important challenges and to show how cantonal tax administrations can make use of digitisation.

3.1 Changing needs and expectations of taxable persons

Just as substantive tax law is subject to constant change, so too is the interaction between taxpayers and tax authorities. This can be seen impressively in the example of the tax return. In 2000, the only form of tax return in the canton of Berne was the paper tax return. In 2017, almost 90% of taxpayers in the Canton of Berne will complete their tax returns on the computer, two thirds of them online. The number of online users continues to rise sharply.

The tax administration of the Canton of Berne wanted to know how its clients would like to experience working with the tax administration in ten years time. In a Design Thinking Workshop they presented their needs and ideas. The main results can be summarised in the keywords "Simple, Mobile and Secure": Completing and submitting the tax return should be easy. It would be appreciated that a tax return filled in in advance with the necessary data would only need to be checked and, if necessary, completed by the taxpayer. The data sovereignty should remain with the taxable persons. This means that they determine which information should flow directly and without media discontinuity into the tax declaration. Open questions should be answered quickly. The payment of taxes should be simple and flexible. It can also be assumed that in the private sector the development towards smartphones and tablets will continue and replace the PC.

Like other tax offices, the tax administration of the Canton of Berne has responded to these needs by offering a fully digital tax return from 2019. Taxpayers can fill out their tax returns electronically and submit them online. The tax return is personalized, i.e. it is already partially pre-filled with data from the previous year or from the register. It is no longer form-based, but user-oriented. Only the information relevant to the specific life situation of the taxpayer is requested. Instead of a thick guideline, the taxpayer receives precise further information on each point during the filling in process.03

Receipts can be uploaded electronically during the filling out process - even with a smartphone. The user receives a link via SMS that connects the smartphone directly to TaxMe-Online, the tax return application of the Canton of Berne. Afterwards, receipts can either be photographed or inserted from the file storage. Once the tax return has been completed, it can be released and submitted electronically. Only after this step is the information available to the tax administration. A release receipt on paper with a handwritten signature is not required. The security of use corresponds to that of online banking. The transmission of data on the Internet is always encrypted.

Any objection can also be submitted electronically. In the BE-Login customer portal, the overview of assessments, invoices and payments is always guaranteed. The taxable person receives the tax invoice directly in their online banking mailbox.

As a next step, it is planned to provide an electronic mailbox for all communication with the tax administration and to enable payment of the tax debt directly from the online portal. With the integration of the Swiss ID04 a simple uniform identification and login process is possible. Tax collection is also to be further simplified. Digital and seamless solutions are planned for collection measures, payment agreements and account number requests.

One challenge is the desire to be available to the tax authorities quickly and at any time. Already today, the central telephone number of the tax administration of the Canton of Berne alone receives more than 330,000 calls annually. For resource reasons, telephone response times had to be reduced this year. A pilot project is therefore looking into the question of whether the subsidiary use of chatbots could ensure comprehensive and customer-friendly accessibility.

3.2 Cost pressure and efficiency improvement

The responsibilities of tax administrations are increasing and becoming broader. The constant population growth in Switzerland as well as the unbroken trend towards single households is leading to more tax cases. In the Canton of Berne, the number of tax returns to be processed increases by around 1% every year. New tasks, such as the exchange and processing of data from the automatic exchange of information, are added. The withholding tax reform, which comes into force on 1 January 2021, and the extended tax deductions based on the Energy Strategy 2050, which have been possible since 1 January 2020, will require additional assessment procedures. The introduction of new instruments such as the R&D deduction or the patent box will initially mean additional work for both taxpayers and tax administrations.

At the same time, there is regularly strong political pressure in many cantons to reduce costs, especially personnel costs. For example, the tax administration of the Canton of Berne cut 23.8 full-time jobs between 2013 and 2018. A further 9.5 full-time jobs must be cut by 2021.

With the right digitization steps, efficiency gains can often be achieved in this environment without compromising the investment quality and the service concept of the administration.

The standardization and automation of processes and the reduction of media breaks play an important role in increasing efficiency. For example, the electronic transmission of tax returns is sure to increase convenience and reduce costs for taxable persons. However, it is also a prerequisite for the tax authorities to be able to automate the data in the first place and thus process it efficiently.

The tax administration of the Canton of Berne is currently automating the time-consuming manual securities checks. The e-tax statement, which allows taxpayers to voluntarily exchange data electronically with banks and tax authorities, can be used in the Canton of Berne from the 2019 tax return.05 It was approved by the Swiss Tax Conference (SSK)06 initiates and enables efficiency improvements at banks, bank customers and tax authorities. The customer can upload the etax statement from his eBanking portal directly into his tax return. The imported data then appears as individual items in his securities directory. Like all other individually recorded securities, these can be automatically checked by the tax authorities using the Swiss-wide ICTax application.07 The time-consuming search and control work is no longer necessary. A further advantage is that transmission errors are avoided with the declaration and control process without media discontinuity.

The next step will be to push ahead with the automation of the investment process. If all tax return data is available in digital form, it can be automatically checked, compared with databases and supplemented with data from third sources. If there are any ambiguities, the system can directly ask the taxpayer or carry out a collection action. Taxpayers will also benefit from such an increase in efficiency, as they will receive the assessment ruling many times faster than before.

Already today, around 18 % of taxable natural persons in the Canton of Berne are assessed fully automatically. With the help of new techniques and processes, the rate of automation is to be significantly increased while maintaining the same assessment quality. However, even for the (larger) proportion of cases that will still have to be assessed manually in future, efficiency can be significantly increased by digital means: When a case is processed in the investment programme, the investment expert will receive advice and proposals for a decision on the case. The system compares the case in question with many similar cases in its database. The system can learn from the way in which the proposals are accepted or rejected by the investment experts and can improve continuously by setting up new, more precise test parameters. Ideally, such cases can then be assessed fully automatically in the future.

4. the tax assessment procedure in the digital environment

Switzerland has known how to levy taxes according to a standardized process since the 19th century, when the understanding of taxes as a payment for services provided by the state to the individual became established.08

The cantonal tax offices or the FTA have the legal mandate to collect taxes.09 However, the framework within which this mandate is to be fulfilled is usually not specified in more detail. However, it seems clear that the actions of a tax authority as part of the general state administration must comply with the principles of constitutional administrative action set out in the Swiss Federal Constitution: This means that the principles of legality (Art. 5 para. 1 BV), public interest (Art. 5 para. 2 BV) and proportionality (Art. 5 para. 2 BV) as well as equality of rights, the prohibition of arbitrariness (Art. 8 / 9 BV) and the principle of good faith (Art. 5 para. 3 and Art. 9 BV) must be strictly observed.10

However, this leaves considerable room for manoeuvre. Neither the Federal Act on Direct Federal Taxation (DBG) nor the Federal Act on the Harmonisation of Direct Taxes of the Cantons and Municipalities (StHG) contain specific provisions on the course of the assessment procedure. In the absence of relevant federal law, the cantonal procedural provisions are applicable.11 At cantonal level too, however, details of the assessment procedure are regulated in a rather rudimentary manner. The canton of Berne, however, in the Ordinance on the Tax Assessment Procedure (VVV) of 30.01.2002, provides that the tax return can be submitted in paper form or via the Internet and describes the two procedures (Art. 2 ff. VVV). Article 7 of the same ordinance regulates the form in which injunctions and decisions can be opened.

With the ongoing digitalisation it has become apparent that many legal bases on procedural issues are no longer up to date and do not provide answers to concrete new questions. This is probably due not least to the fact that digitisation is shifting the conditions to which legal regulation is linked. As shown above, in a digital world, external appearance no longer plays a role. Even today, however, legal provisions are still linked primarily to external circumstances. In connection with digitisation in the tax field, the following questions could arise, for example:

• What is the meaning of Art. 71(3) StHG if there are no longer paper forms but a digital tax declaration process in which user-specific data is requested?
• What is the meaning of a personal signature on the tax return in accordance with Art. 124 Para. 2 DBG in the case of digital data transmission?
• Does a tax administration have to provide for several ways in which taxpayers can transmit their data? May it prescribe a particular option?
• Are citizens entitled to direct personal contact with the tax administration?
• What data in what form may the tax authorities require from taxable persons? Would it be possible, for example, instead of requiring signed annual accounts in accordance with Art. 125 para. 2 DBG, to provide an interface directly into a company's accounting software?  

Such questions concerning the organisation of the tax return and assessment process have not been in the foreground so far, but they are gaining in importance and call for clear regulations. It is important that the federal government and the cantons follow the principle of technical neutrality when adapting tax procedure law to the digital age and do not regulate or favour any particular technology by law.12

Germany offers illustrative material on this subject, which consistently also addresses the digital aspects of the tax procedure in its Tax Code (Abgabeordnung, AO): Sections 87a - 87d regulate electronic communication and the electronic transmission of data to tax authorities, Section 150 regulates the form and content of tax returns and Sections 357 and 366 regulate the form of the objection and the decision on the objection.

It would go beyond the scope of this paper to provide conclusive answers to the questions raised above. Michael Beusch and Roger Rohner have already dealt with some of these questions in detail in 2006 in their essay "Possibilities and limits of electronic filing of tax returns for direct taxes".13

With the dispatch on a "Federal Act on Electronic Procedures in Tax Matters" adopted on 20 May 2020, the Federal Council has set itself the ambitious goal of creating the legal basis for the complete digitisation of tax procedures.14 In any case, Swiss tax legislation will thus take a major and important step into the digital future. It is to be hoped that the upcoming parliamentary discussions will proceed swiftly and that the law can enter into force soon.

Against the background of this draft law, a few considerations on the issues raised above are given here.

4.1 Article 71(3) of the Act

The view that the harmonization requirement of Art. 71 para. 3 StHG is predominantly programmatic in nature has already prevailed.15 As long as tax law in Switzerland is not materially unified, the cantons will need different data for the assessment, which is contrary to absolute standardisation. With the digital development, however, Art. 71 para. 3 StHG also becomes grammatically meaningless. The Federal Council therefore wants to delete this provision without replacement.16

While forms are becoming less important, harmonization of the management, use, transfer and storage of tax data between tax authorities, but even more so between taxpayers or third parties and tax administrations, is becoming increasingly important. It would make sense to have harmonised interfaces and data formats and to define uniform technical standards without infringing the principle of technical neutrality. The Swiss Tax Conference and the associations eCH17 and swissdec18 have already done important work in this respect: The CH Tax Reporting System, for example, regulates the electronic exchange of legally required information in the tax environment. As part of the Wage Standard CH Withholding Tax project, wage data is exchanged between employers and the cantonal tax authorities.19

Experience shows that voluntary standards are slow to establish themselves, especially when - as in tax law - many parties with different interests are involved. The legislator would have it in his hands to speed up this standardization work and make it more binding by enacting appropriate modern regulations.

4.2 Signing the tax return

It goes without saying that a handwritten signature is no longer possible without a paper carrier. According to the Federal Council's message, it should therefore be possible in future to dispense with the signature in electronic processes.20 The Federal Council is right to refrain from replacing a handwritten signature with its digital counterpart, the electronic signature. The spread of electronic signatures in Switzerland is still slow. Instead, the cantons should be obliged to ensure the identification of the taxpayer and the data integrity of the transmitted data in accordance with cantonal law.21 Instead of signing the submission, the cantonal authorities may provide for electronic confirmation of the information by the taxpayer when the submission is made electronically.22 This also makes portal solutions possible. As with online banking, the person liable to tax identifies himself at registration. Once registered, they can communicate and exchange data with the tax authorities on the portal without the need for an (electronic) signature or identification each time.

How the cantons implement the requirements technically is left to their discretion. The Canton of Berne, for example, currently ensures identification by requiring taxpayers to provide their AHV number and an e-mail address in addition to the access data they receive from the tax authorities (ZPV number, case number and ID code). As mentioned, Swiss ID will also be used for identification purposes this year.

4.3 Type of data transmission

For a long time, tax return data could only be submitted on mandatory paper forms.23 In most cantons the data can now also be transmitted electronically. The Federal Council proposes that in future the cantons should have the right to send documents in electronic form to taxable persons with their consent.24 However, in the case of direct taxes, taxpayers cannot be obliged to receive official notifications electronically. Nor should they be obliged to transmit their data electronically. This is in contrast to the taxes for which the federal government is responsible. In the case of withholding tax, stamp duty and VAT, for example, the Federal Council should be given the authority to oblige taxpayers to deal with the FTA electronically. It should also be possible to prescribe the modalities of implementation (e.g. via a platform).25

Today almost 90% of Swiss households have a computer26 and 95% of all households have broadband Internet access.27 In view of these figures, consideration should be given to making the tax return process mandatory electronic in the near future also for direct federal tax (and cantonal taxes). This could massively reduce costs and increase efficiency. Anyone for whom electronic transmission is absolutely unreasonable could, following the example of § 151 of the German Tax Code, declare their tax return to the competent tax office for transcription.

4.4 Personal contact

In the interests of customer-friendliness and easy accessibility, it is now a matter of course that the tax authorities can be reached by telephone and that meetings can be held if necessary. The tax administration of the Canton of Berne alone records well over half a million telephone customer contacts per year. On average, every taxable person in the Canton of Berne phones the tax administration once a year. Despite the ongoing expansion of the Internet service, the number of telephone calls is rising. Some cantons are therefore looking into how such customer contacts could be handled automatically and digitally, for example by using chatbots.

A chatbot is a technical dialogue system that can be used to communicate by text input or voice. In order to process and answer the received requests, chatbots use knowledge databases and recognition patterns for the respective questions and answers. Once a suitable answer is found, it is prepared for output and, if necessary, combined with other elements to make it as relevant as possible. The final step is the grammatical synthesis of the answer and the output via text or speech.

It should be undisputed that the tax authority must be easily accessible so that the taxpayer can make the taxable person aware of the obligations laid down in Art. 124 et seq. DBG and Art. 42 StHG so that the taxpayer can fulfil his procedural obligations. However, there is no entitlement to a specific type of contact or a basic right of choice of contact.28 There should therefore be no legal obstacles to the introduction of automated responses to customer enquiries by means of chat offers, provided that the basic requirements such as data security or tax secrecy are complied with.

4.5 Nature and scope of the data

According to Art. 125 and 126 DBG and Art. 42 StHG, taxpayers have comprehensive obligations to provide information, evidence and cooperation in the tax assessment process. The tax authorities in turn have extensive rights of investigation (cf. Art. 130 DBG). Since direct taxes are levied as of a specific date for each tax period, it is usually appropriate and sufficient to request the relevant information once a year as part of the tax return. However, in the context of the review of the tax return or comprehensive audits of accounts, it might be worth considering, in the case of persons subject to accounting obligations, if the tax authority could dock directly, quasi in real time, to the accounting systems and conduct investigations instead of carrying out on-site audits or requesting comprehensive documentation. This could also be advantageous for taxpayers: instead of submitting extensive tax returns with enclosures every year, the tax authority would get the information when it needed it.

According to the author's opinion, such an accounting interface would already be permissible under the current legal basis in the relationship with the taxable person today. Article 6 of the Ordinance on the Keeping and Retention of Business Books (Business Book Ordinance; GeBüV) also provides that business books and accounting vouchers must be stored (electronically) in such a way that they can be viewed and checked within a reasonable period of time. In the digital age, it may be assumed that a reasonable period of time can be a very short period of time. Of course, such a solution would also have to be proportionate. In other words, it would have to be suitable and necessary to carry out the checks and it would have to be reasonable for the taxpayer.29

In relation to third parties, on the other hand, such a reporting or retrieval procedure of data concerning the taxpayer would require an explicit formal-legal basis30 or at least the explicit consent of the taxable person and the willingness of third parties to provide the requested information.

5. conclusion

The public administration and especially the tax authorities need digitisation in order to be able to cope with the constantly growing tasks at all. At the same time, sensibly implemented digitisation offers citizens significant added value. Even if we are not exempted from paying taxes so quickly, the way we declare and pay our taxes is likely to change and simplify fundamentally.

The tax authorities play a decisive role in this development process. However, there is sometimes a fine line between what is technically feasible and what is politically or socially acceptable.

The legal basis is lagging behind the digital development, especially in the tax area. The adjustments provided for in the planned "Federal Law on Electronic Procedures in the Tax Field" will be a major step in the right direction. Nevertheless, there is still a need for further action in harmonising the procurement, transmission and use of tax-relevant data. For only a sufficient, stable and correct database enables efficient and effective digital tax processes.