WO2006030425A2

WO2006030425A2 - System and method for analysing fiscal transaction

Info

Publication number: WO2006030425A2
Application number: PCT/IL2005/000971
Authority: WO
Inventors: Avner Avdar
Original assignee: Avner Avdar
Priority date: 2004-09-14
Filing date: 2005-09-13
Publication date: 2006-03-23
Also published as: IL164080A0; WO2006030425A3

Abstract

A system for accepting and analyzing reports of tax registered businesses (70) and others. Forms relating to fiscal transactions of various kinds are filled in are sent to a database and tax analysis module (78) of a tax authority. The tax analysis module (78) analyses the database (76) at least over a prescribed period of time for detecting tax frauds. Data stored in the database (76) of the tax authority can be sued to analyse capital of registered businesses.

Description

SYSTEM AND METHOD FOR ANALYSING FISCAL TRANSACTIONS

FIELD OF THE INVENTION

The present invention relates generally to the field of tax regulation. More specifically it relates to ways of verifying reports relating to fiscal transactions.

BACKGROUND OF THE INVENTION

Value added tax (VAT) is charged as a percentage of the price (of goods or services). It is collected via a system of deductions elaborated by the tax authorities. Each tax registered business (TRB) reclaims the VAT liability by charging the next buyer in the chain. VAT is a consumption tax, as the final consumer bears the entire liability.

To explain the chain of VAT deduction in more detail reference is first made to Fig.1. TRB 20 is a seller. TRB 20 sells to TRB 22 and issues an invoice which is subsequently provided to TRB 22, as represented by arrow 24. In return, TRB 22 pays the amount on the invoice to TRB 20 and adds to it a predetermined fraction of the cost, which is the VAT provided to TRB 20, as represented by thick arrow 26. TRB 20 reports this transaction to the tax authorities 28. TRB 22 also reports this transaction to the tax authorities as an invoice receiving party, as represented by upwards pointing arrow 29. Further down the chain, TRB 30 buys from TRB 22, receives an invoice, transfers the VAT to TRB 22 and TRB 22 reports to the tax authorities 28 as an issuer of an invoice, as indicated by downward pointing arrow 31. TRB 30 reports to the tax authorities 28 as a receiver of an invoice of a transaction, as indicated by arrow 34. Further down the chain, a buyer 32 who is not a TRB, buys from TRB 30, and in turn receives an invoice issued by TRB 30. In return TRB 30 receives the amount due for the purchase and VAT provided by buyer 32. TRB 30 reports this transaction to the tax authorities as indicated by arrow 36. Buyer 38 who is not a TRB sustains the entire tax. All transactions described above will be referred to hereinafter as invoice transactions. Any such transaction between two TRBs is a fully reportable invoice transaction, and any transaction between a TRB and a non-TRB buyer is a partially reportable invoice transaction.

In contrast to the regular chain of tax deductions described above, a chain including fraudulent activity is described in Figs. 2A -C. In Fig. 2A TRB 40 sells and issues an invoice, and receives price and VAT from TRB 42. This transaction is also reported to tax authorities 28. Further down the chain, TRB 42 sells to TRB 44 issues a fake invoice, receives from TRB 44 the price and VAT, but does not report at all to the tax authorities. In Fig.2B TRB 50 sells to TRB 52 but does not issue any invoice and does not report the transaction. TRB 50, however, receives some money from TRB 52, represented by dashed arrow 54. In Fig. 2C TRB 42 issues a fraudulent invoice not accurately covering the transaction and the invoice as such is reported to tax authorities 28. The price and VAT received do not correspond with the amount of money indicated on the invoice, represented by dashed arrow 58. Another fraudulent intension is realised as a receiving TRB does not report to the tax authorities the participation in a transaction. This list of examples of fraudulent conduct on behalf of the tax reporters is not an exhaustive one, as other possibilities for defrauding the tax authorities may be devised. In each case of such fraudulent action, the tax authorities are either not paid at all or only receive a part of the liability. Moreover, since the invoices are also used to track the transactions as relate to income taxes, the issuance of false invoices or the non-issuance of such invoices reflects on the amount of income tax received by the tax authorities as well.

Some tax authorities control the VAT deduction system and the income by collecting VAT invoices and reports from both TRBs involved in each invoice transaction. Invoices are usually issued as paper forms sent to the tax authorities during predetermined time periods. Such authorities rely usually on statistical sampling methods or on random examination of TRBs for the analysis of the bulk of the TRBs. BRIEF DESCRIPTION OF THE DRAWINGS

Fig. 1 is a schematic description of the steps in which the VAT is deduced along the chain of tax registered businesses ending with a non registered buyer; Fig. 2A is a schematic description of a fraudulent transaction made by a tax registered business;

Fig. 2B is a schematic description of a fraudulent transaction made by a tax registered business;

Fig. 2C is a schematic description of a fraudulent transaction made by a tax registered business;

Fig. 3 is a schematic description of the database connections in a system of the invention;

Fig. 4 is a schematic description of the input and output channels the monitoring of which is used in assessing the overall capital of a tax registered business;

Fig. 5 is a schematic representation of the matching made by the tax analysis module to detect frauds and erroneously reported transactions;

DETAILED DESCRIPTION OF THE PRESENT INVENTION

In accordance with present invention, a system is provided for collecting the reports of each taxable transaction. A schematic description of a preferred embodiment of the invention is described in Fig. 3. TRB 70 issues an invoice to and receives the VAT from TRB 72 as in the prior art. The exact details of the transaction with respect of the fiscal issues are reported to database 76 of the tax authorities. Database 76 would then receive an account of the transaction relating to the identity of the transaction, the identity of the invoice issuing TRB, the actual price paid, the VAT added and the identity of the TRB receiving the invoice. Typically, both the issuer and the receiver of the invoice will have reported the same transaction, in which case any fraudulent activity on behalf of one side of the transaction will be made evident easily by the tax analysis module 78. If subscription to the system of the invention is not compulsory, some of the TRBs may not subscribe to the system, and therefore not all transactions may be fully reported. In such a case, all non-subscriber TRBs are tagged in the database such that the tax analysis module would identify them.

The identity of the transaction is typically associated with an identity number which identifies the specific invoice involved in the transaction. In one variant of this embodiment, the report is performed online, by using a network such as the Internet, typically employing a secured connection. In such a case the invoices are preferably computerized forms filled out by the TRB and stored in a database of the TRB as well as the database of the tax authorities. A computer program for that matter is issued by the tax authorities and provided to each TRB. If the transaction is made between a TRB and a non TRB buyer, it is the responsibility of the invoice provider to report the identity of the buyer. Alternatively accounting computer programs already in use by the public may be converted to include an additional feature for preparing the report and sending it over to the tax authorities. Another variant of the system of the invention is one in which the TRB does not provide the report online to the tax authority database, but the details are stored in the reporters own database to be issued on a specified date or time offline. The offline reporting scheme may use a physical form schedule in which the TRBs fill out paper forms and submit them to the tax authorities by a certain date. In such a case, barcodes or other coding means borne by the official paper forms may be added to assist data retrieval by the tax authorities. In any variant, the reports of a specific transaction are to be reported within a specific time frame, to harmonize all the reports of the transactions, by all the TRB as will be explained later. Other means of providing reports to the tax authorities may be magnetic media or other digital media such as optical disks, flash memory devices, tapes, etc.

The system of the invention, receiving all accounts of invoice transactions may be used further, to analyse an individual TRB or a nonTRB entity, with respect to the total income versus expenditures in order to detect tax frauds. In Fig. 4 to which reference is now made, TRB 88 is paid in connection with transaction 90, 92 and 94 to which all invoices have been issued. In addition TRB 88 receives money from source 96 as a salary, and source 98 which is rental payment. The expenditure aspect is represented by invoice transactions 102, 104 and 106 in which TRB 88 received invoices. Additionally, the expenditures of TRB 88 included payment of salaries 110 and donation to charity 112. Each such transaction if reported by the TRB will provide an account to the tax authorities of the overall capital of the TRB. Each transaction, whether a VAT transaction or not, if accounted for, provides input for a justification of the tax liability of the TRB. In a preferable situation all the tax reporting entities are monitored by the system of the invention, a transfer of money from any such entity to another is expected to be accounted for in the database of the system. Therefore a redistribution of capital among the reporting entities can be assessed by quantifying the transfer of capital in each transaction. As regards non-TRB entities, all invoices issued in invoice transactions and received by such entities, are reported to the database regularly by the invoice issuer. This information may be used to construct a personal database which may be used to assess personal tax liability of the non-TRB entity.

The system of the invention, receiving all reports of invoice transactions in a territory in which the authority is enforced, may be connected to computerized tax databases of other territories in a manner as complies with the local and international rules and regulations, mainly in order to receive reports relating to international transactions. Such reports are to be analysed in compliance with international tax treaties.

Non fraudulent irregularities The system of the invention may be used to globally monitor the TRB reporting to the relevant authority, and can also monitor some aspects of the non-TRB entities relating to the authority. The system is to detect irregularities in transactions as typically generated by human or machine errors. For example, the erroneous filling in of a date, a sum of money or an identity number of an invoice or a TRB. In such a case any discord between two corresponding entities associated with a transaction are detected by the system of the invention to subsequently notify the entities associated.

The tax analysis module (TAM)

The TAM is a software package having access to the tax database of the invention. The TAM implements algorithms that retrieve data from the database, perform calculations and draw conclusions as to possible fraudulent activities of the TRBs. The TAM analyses the database in several ways. For example, complementary transaction report algorithm checks the mutual agreement between the two TRB sides of a VAT transaction. To explain this reference is made to Fig. 5. For a specific time period which may be defined in terms of months, weeks, days or less, the TAM scans the list of TRBs for associated invoices in the direction of arrow 138. The associated invoices are defined either as issued or accepted. TRB 142 was found to have issued several invoices in that time period. TRB 146 was found as having accepted several invoices at that time period. Invoice 148 issued by TRB 142 matches an identity number and time of issuance of invoice 150 accepted by TRB 146. If all the invoices issued by TRB 142 were found to have matching accepting TRBs₁ for that time period, and for the same tax liability, TRB 142 can be considered as non fraudulent. However, if a transaction was carried out such that both a selling TRB and the corresponding buying TRB instigated a fraud by making a transaction with neither one reporting it, the fraud would not be detected directly. Indirectly, the system will be able to detect such compound frauds by assessing the overall capital and capital change of each TRB and non TRB entities over time.

In some embodiments of the invention, the TRB is involved in the construction of personal database of TRB and non-TRB entities in order to assess tax liabilities of these entities. A different issue for which the TAM is responsible in some embodiments is the assessment of erroneous activities of TRBs₁ the analysis of fraudulent activities and distinguishing fraud from errors. To that end, the TAM can keep a record of erroneous activities detected. For each TRB monitoring and analysis of errors may provide the basis for detecting irregular activities, typically irregular transactions, on behalf of a TRB, be they fraudulent or erroneous. For example, a recurring omission of a specific detail from an invoice, over several reporting intervals, may be interpreted as fraudulent activity on behalf of a TRB. Reporting Intervals

As mentioned above, the reports by the TRB concerning invoice transactions are done in accordance with the invention at prescribed time limits such that each transaction relates to a specific period. Even in a fully computerised environment, in which the invoices are completed using a computer and sent to the tax database online, there are reasons to expect belated filing of reports, such as resulting from technical difficulties and unexpected failures. However, it is expected that the shorter the reporting interval is, the more accurately the system is able to assess capital distribution among the TRBs and non-TRB buyers.

Reporting means and data security

Means for sending reports are preferably computerized conforming with generally accepted computerised communications hardware and software standards. The reports sent from the various TRBs are, however, transmissible in different paths. Regular post, faxes and emails are typically acceptable. A report receiving interface in the tax authorities' facilities typically allocates means and personnel for collecting the reports and for retrieving the data contained in them. The retrieved data is subsequently transformed into system readable format for processing and/or storage in the database.

The data stored in the tax authorities' database is to be protected from external intruders on the one hand and from internal abuse on the other. To such end, generally accepted encryption methods may be used. Encryption methods using public and private keys are applicable and the tax authorities may decide how many of the private keys are made available. The number of officials having access to the private key may be kept to a minimum to minimize the risk of improper use of the data contained in the database.

Automation of invoice reporting

Several means are proposed for streamlining the reporting procedure, saving reporting time and reducing mistake counts. A standardized invoice is proposed that uses electronically or optically readable indicia for conveying the data automatically to the tax authorities. Two common methods are currently used for similar automation purposes. Bar coding is one such method that uses graphical codes for expressing alpha numeric data. Accordingly, the invoices issued contain the information in barcodes, sometimes in addition to the alpha numeric data used customarily. Another more advanced method uses RFID (radio frequency Identification) tags, these are magnetic or electronic magnetic tags conveying possibly much more complex information in a small electronically readable tag attachable to the invoice.

Claims

1. A system for accepting and analyzing reports of tax registered businesses (TRBs) wherein filled - in forms relating to at least invoice transactions are sent to a database of a tax authority and wherein a tax analysis module analyses the database at least over a prescribed period of time for detecting tax frauds.

2. A system as in claim 1 and wherein said report is a computerised form.

3. A system as in claim 1 and wherein said report is a paper form containing electronically or optically readable indicia.

4. A system as in claim 3 and wherein said report is a barcoded paper sheet.

5. A system as in claim 1 and wherein said report is provided by digital means to the tax authorities.

6. A system as in claim 5 and wherein said report is provided encrypted.

7. A system as in claim 1 and wherein a tax analysis module monitors a capital change of a tax registered business.

s

8. A system as in claim 1 and wherein a tax analysis module monitors a capital change of a non tax registered business entity.

9. A method for detecting tax frauds wherein tax registered o businesses (TRBs) send a report to a database of the tax authorities describing the transaction in which they are involved in terms of the identity of at least one TRB, time of transaction and sum of VAT involved, and wherein a tax analysis module analyses said database.

10. A method as in claim 8 wherein two TRBs report details relating to each specific invoice transaction, and wherein a lack of a matching TRB to a reporting TRB in a transaction is interpreted as an irregular transaction.