Republic of Slovenia: Technical Assistance Report-Data-Driven Risk Assessment

TECHNICALASSISTANCEREPORT REPUBLICOFSLOVENIA Data-DrivenRiskAssessment December2022 PreparedBy LudvigWierandShanZhong AuthoringDepartments: FiscalAffairsDepartment DISCLAIMER ThecontentsofthisdocumentconstitutetechnicaladviceprovidedbythestaffoftheInternationalMonetaryFundtotheauthoritiesoftheRepublicofSloveniainresponsetotheirrequestfortechnicalassistance.UnlesstheCDrecipientspecificallyobjectstosuchdisclosure,thisdocument(inwholeorinpart)orsummariesthereofmaybedisclosedbytheIMFtotheIMFExecutiveDirectorfortheRepublicofSlovenia,tootherIMFExecutiveDirectorsandmembersoftheirstaff,aswellastootheragenciesorinstrumentalitiesoftheCDrecipient,andupontheirrequest,toWorldBankstaff,andothertechnicalassistanceprovidersanddonorswithlegitimateinterest[ifapplicableonly]membersoftheSteeringCommitteeof[nameofRCDC)orThematicFund)](seeStaffOperationalGuidanceontheDisseminationofCapacityDevelopmentInformation).PublicationorDisclosureofthisreport(inwholeorinpart)topartiesoutsidetheIMFotherthanagenciesorinstrumentalitiesoftheCDrecipient,WorldBankstaff,othertechnicalassistanceprovidersanddonorswithlegitimateinterest[ifapplicableonly]membersoftheSteeringCommitteeof[nameofRCDCorThematicFund]shallrequiretheexplicitconsentoftheCDrecipientandtheIMF’sFiscalAffairsdepartment. GLOSSARY CD CapacityDevelopment CRM ComplianceRiskManagement CRMU ComplianceRiskManagementUnit CIP ComplianceImprovementPlan CIT CorporateIncomeTax DG DirectorGeneral MNE MultinationalEnterprise OECD OrganisationforEconomicCo-operationandDevelopment PIT PersonalIncomeTax SFA RepublicofSloveniaFinancialAdministration SFO SpecialFinancialOffice TP TransferPricing VAT Value-AddedTax I.INTRODUCTION 1.ThismissionaimedatsupportingtheRepublicofSloveniaFinancialAdministration(SFA)toadvancetheiruseofdataanalyticsinriskassessmentforcorporateincometax(CIT).Overthecourseofthemissiontheteamconductedfourworkshopsandfiveone-to-onesessionstoprovideguidanceonkeytopicalareas,including: Idealorganizationalarrangementstosupportdataanalytics Howtoaccessandutilizebetterandmoredata,includingthirdpartydata Currentdataworkflowsandprocesseswithaviewtostreamliningandimprovingthem Howtoimprovedataintegrity Usingdatascienceandbigdataanalyticstostrengthenriskassessment Leveragingthevalueofcountry-by-countryreports Developingseveraldataanalytics/riskassessmentmodels 2.ThemissionteamfoundthatSFAhashigh-qualitydataandcompetentstafftobenefitfromtheyieldsofdataanalytics.Themissionteamwasimpressedbytheengagementandstaminaofthededicatedstaffparticipatingintheworkshops.Theircommitmentwasdemonstratedoverthecourseofthismissionbybuildingfournewpilotriskassessmentmodelswhichallshowedpromisingresults.E.g.,theCITauditselectionmodelwasestimatedtoincreasethestrikerateincomprehensiveaudits(measuredasacorrectionabove€5000)from50-60percenttoroughly90percent(whiledoingthesamenumberofaudits). 3.ForSFAtoachievethefullbenefitsoftheirpriorinvestmentsindatacapabilities,seniormanagementareencouragedtodeliveronfiveactions:a)fullyendorse,prioritizeandincentivizethejourneytowardsrelyingmoreondataanalyticsb)allowtimefordataanalyticstogrow(sometimesfail)andkeepastableanddedicatedteaminplacec)investinfurtherrecruitmentandretentionofdataanalystsandretrainoperationalstafftojointhedataanalyticsteamd)prioritizedevelopmentofhigh-valueprojects(deprioritizelow-valueprojects)andvigilantlyimplementtheme)haveaconstantfocusonbusinessneedsandrigorouslyevaluatethesuccessofprojects. II.SFAACHIEVEMENTSINADVANCEDDATAANALYTICS 4.ThemissionteamfoundthattheSFAhasalreadylaidthefoundationtoreapthebenefitsofadvanceddataanalytics.Theirestablished“analysisunit”hasdatareadilyavailableduetotimelyinvestmentsinadatacleaning,manipulation,andstorage.TheuseofdataacrosstheSFAis alreadywidespreadwithmorethan50dataapplicationsinusewhileanadvancedpredictivemodelisunderdevelopmentintheITdepartment. 5.Withanabundanceofdataavailable,nextstepsaretoutilizedatasourcesmoresystematically.Inamatterofdays,themissionteamwasabletogethigh-qualitydataonaudits,taxreturns,Country-by-Country-Reports,businessriskrulesandbalancesheetsoffirmsoperatingintheRepublicofSlovenia.Alldataeasilymergedusinguniquetaxpayeridentifiers.ThisinformationisthebedrockofdataanalyticsandSFAisonsolidgroundhere.Themainjobaheadisthereforetoutilizetheexistingdatainasystematicmanner.Thatis,toautomaticallyidentifyrisksbasedonsystematicdata-drivenmodelsutilizingalltheavailabledata.EspeciallyfortheCITriskassessments,thereisscopeforfurtherrelianceonthistypeofsystematicanalysis. 6.Thestepsneededtoexpandtheusageofsystematicriskanalysisareinmanycases(very)small.ThemissionteamfoundthatthebusinessriskindicatorssetupfortransferpricecaseselectionwereaccurateinpredictingtheyieldofCITcomprehensiveaudits.HavingamoresystematicapproachtogeneralCITauditselectionisthereforesimplyaquestionofutilizingexistingwork.Similarly,thetransferpricebusinessriskindicatorscouldalsobeusedtodeliveronthepreviousIMFrecommendationsofsettingupriskprofilesforthelargesttaxpayers(inpreviouscapacitydevelopment(CD)reportsfrom2022