The use of artificial intelligence by the tax authority in dispute resolution – between potential benefits and concrete risks

The tax authority is increasingly using artificial intelligence, including in the process of substantiating tax dispute resolution decisions. Moreover, the use of artificial intelligence has generally intensified in the legal and fiscal environment, bringing multiple benefits for practitioners. In addition, the digitization efforts that have been made in the recent period by the tax authority are welcome for both taxpayers and the institution.

On the other hand, however, it appears from practice that artificial intelligence is used in many cases exclusively to combat the taxpayer's arguments, which generates a series of inaccuracies that deviate from the goal of correct resolution of tax disputes. Thus, there is a need for the responsible application of solutions of this type, especially when they are used by the tax authority and even more so in the process of resolving tax disputes or in court.

In the process of resolving tax appeals, the tax authority has the essential role of issuing a decision regarding the tax claims that a taxpayer has when he considers that an administrative-tax act has been issued against him that violates his rights or legitimate interests.

However, in practice, there are situations in which the tax authority motivates the decisions to settle tax appeals, by which it rejects the taxpayers' objections, with the help of artificial intelligence, but solutions of this type are used exclusively to identify the arguments necessary to combat the taxpayer's arguments. Beyond the discussion regarding the legality itself of such a reasoning for a settlement decision (otherwise contestable), even greater challenges arise when the reasoning in question contains references to non-existent legal provisions, court decisions or practices of international bodies that do not exist in reality (but identified as valid by the artificial intelligence solution used), but are invoked in support of the tax authority's position.

According to the law, the decision to settle the appeal must contain the reasoning both from a factual perspective and from the perspective of the legal provisions, regarding a complaint filed by a taxpayer who considers himself injured in his rights by the tax authority. Of course, the law can be interpreted differently, the tax authority can have its own approach when applying a regulation, just as the taxpayer can have an erroneous perspective on the case. Also, it has already been demonstrated that many of the settlement decisions issued by the tax authority are not correct or legal (which is why the legislation provides appeals for these decisions, and in court they are annulled).

The taxpayer, face to face with the arguments of artificial intelligence

However, a taxpayer has a reasonable expectation that the laws or court decisions invoked by the tax authority when rejecting his appeals are genuine. Moreover, the tax authority has, according to the law, the obligation (and responsibility) to apply unitarily and to coordinate the unitary application of Romanian tax legislation.

A taxpayer who does not have legal training or does not benefit from specialized assistance has minimal chances to defend himself in front of a multitude of arguments supported by legal provisions and court rulings invoked by the tax authority that seem true, but which in reality are fabrications of artificial intelligence.

On the other hand, the reference to non-existent legal provisions or court rulings apparently favorable to the tax authorities, but equally unrealistic, creates difficulties for taxpayers who benefit from legal assistance, but also for the justice process itself.

Decisions to resolve appeals can be challenged in court, and in tax litigation processes the resolution of the legal issue essential for the taxpayer's tax rights and obligations should prevail, not combating the issues raised by the tax authority with the help of artificial intelligence, which unnecessarily complicates the process, increases its duration and partially distorts its purpose.

Complications also arise when, within these processes, the tax authority defends itself by invoking the same legal provisions or court rulings, identified with the help of artificial intelligence, included in the reasoning for resolving the appeal in question or generated during the court process. And such situations are encountered in practice more and more often.

However, the mission of the fiscal authority must remain that of correctly establishing the actual fiscal situation and adopting solutions based on the legal provisions in force, as well as on complete findings on all the edifying circumstances at the time of making a decision, but also when defending the issued decisions in court, even if some of them turn out, in the end, to be wrong or illegal.

In conclusion, the use of artificial intelligence should be carried out in a balanced way, with the aim of developing an efficient and equidistant dispute resolution mechanism by the tax authority.

Opinion material by Bogdan Mărculeț, Counsel, Reff & Associations | Deloitte Legal

Article supported by Deloitte Romania