Annika Soom analysis in Kluwer International Tax Blog if Estonia´s tax behavior rating could facilitate abusive tax practice

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Annika Soom analysis in Kluwer International Tax Blog if Estonia´s tax behavior rating could facilitate abusive tax practice

In November 5 the recognized international tax blog Kluwer International published an article written by RASK´s tax expert Annika Soom, discussing the benefits and potential threats of the new easy-to-access online tax behavior rating, introduced by the Estonian Tax and Customs Board (ETCB) in summer 2020.

To further enhance the progressive dialogue between Estonian tax authorities and taxpayers, ETCB launched a new e-service in summer, enabling the companies to receive instant automatic feedback and information about their tax behavior and compliance from the perspective of ETCB – the Tax Behavior Rating (TBR).

The tax compliance of the TBR is based on six data components: tax arrears, declarations, offences, tax proceedings, background of responsible person and average wages. The tax behavior part of the TBR is calculated on the basis of taxable expenses, payments, registrations in the employment register, purchases and sales declared on the VAT return and other observations made by the ETCB.
The information is analyzed and compared with the information submitted by other taxpayers as well as information obtained from public registers. Thereby, the ETCB is able to conclude for example whether the taxpayer could be involved in paying hidden salary, untaxed use of a company cars or undeclared supply.

In one hand this new innovative e-solution gives valuable insight to entrepreneurs, adding a valuable amount to the transparency and dialogue with the authorities. But regardless of the noble aim - to help taxpayers in keeping their tax matters in order, the TBR could also be used, to some extent, to facilitate abusive tax practice. As the data, of which the TBR is generated, is to the large extent submitted by the taxpayer itself, it also makes it possible to manipulate with the outcome.

However, as there will always be some taxpayers trying to push the boundaries and hijack the innovations introduced, it should not hinder the application of digitalization and automatic data processing in the field of taxation, argues Annika Soom in her article.

Kluwer International Tax Blog is a publication of Kluwer Law International, providing timely insight, comment and analysis on international tax law. Blog posts are written by leading international tax experts from different backgrounds. The result is a fresh, high-quality, and timely examination of the world of international taxation.

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