A comprehensive system of taxpayer registration and identification is critical for the effective operation of a tax system. This chapter comments on some of the issues that are of significance for registration and identification processes.
Tax Administration 2022
Comparative Information on OECD and other Advanced and Emerging Economies
Tax Administration
3. Registration and identification
Abstract
Introduction
A comprehensive system of taxpayer registration and identification is critical for the effective operation of a tax system. It is the basis for supporting self-assessment, value-added tax and withholding tax regimes, as well as third party reporting and matching. This chapter comments on five issues of significance in taxpayer registration and identification: levels of registration, registration channels, integration with other parts of government, identity management, and emerging common approaches to digital identity.
Levels of registration
The fundamental importance of an effective tax registration system cannot be underestimated. Tax administrations need strong processes to both manage those taxpayers that are “part of the system” and to help them identify those yet to register. Furthermore, they need to be able to monitor and determine actions and interventions to establish any liability to tax for both individuals and corporate bodies, even in systems where filing is not mandatory.
Figure 3.1 provides information on the rate of registered personal taxpayers as a percentage of the total population. This shows a wide range of registration rates, often reflecting the level of integration the tax administration has with other parts of government.
Figure 3.1. Registration of active personal income taxpayers as percentage of population, 2020
Source: Table D.10 Registration of personal income taxpayers.
Registration channels
While the majority of administrations are solely responsible for the system of registration for tax purposes within their jurisdictions, previous editions of this series have shown that in many jurisdictions the registration processes can also be initiated outside of the tax administration through other government agencies (OECD, 2019[1]).
Figure 3.2. Availability of registration channels for taxpayers, 2020
Note: The registration channels may not always be available for all tax types or taxpayer segments.
Source: Table A.39 Registration channels.
In looking at how taxpayers can register, almost all administrations reported they provide more than one channel for taxpayers to use and 93% report that it is possible to register online. Compared to data from the 2017 edition of this series (OECD, 2017[2]) this is a 23 percentage point increase. In fact, together with in-person registration, online has become the most widely offered registration channel (see Figure 3.2) and in one jurisdiction (Saudi Arabia), taxpayers can only register online (see Table A.39).
While the underlying survey does not allow identification of whether the online registration channel is available for all tax types or taxpayer segments, tax administrations report significant investment in digital identity programmes, including using artificial intelligence to improve efficiency and effectiveness. This is helping cement digital identity as the cornerstone of successful digitalisation activity. The shift to digital channels may also help drive further efficiencies. Figure 3.2 highlights the continuing high level of in-person offerings, which is often an expensive service channel.
Box 3.1. Examples – registration channels
Canada - Use of provincial digital identities
The Canada Revenue Agency (CRA) is continually looking to improve service delivery and regularly receives feedback on its services. The Agency has heard from its clients that it can be challenging to remember multiple usernames and passwords, especially as organizations require users to create more complex passwords.
In support of the Pan-Canadian Trust Framework, the CRA, as part of the federal government, sought provincial partnerships to be able to leverage their provincial digital IDs. This allows citizens to use their provincial credentials to access CRA services instead of having to create another username/password.
As provinces are the issuers of foundational documents (e.g. birth certificates, health cards, driver’s licenses, etc.) with in-person services, they are well placed to identity proof individuals.
The CRA is currently partnered with the province of British Columbia (BC). From February 2020 to December 2021: 223 107 individuals (unique users) have used their BC Services Card credentials to sign-in to CRA’s secure portals, representing close to 2 million sign-ins (1 976 674). As additional provinces establish digital identity programs, the CRA will explore future partnerships.
China (People’s Republic of) - Digital identity supporting smart taxation
The State Taxation Administration (STA) is building a national network to provide a secure and consistent digital identity, laying a solid foundation for smart taxation. Based on legal identity and a national authoritative authentication source, the digital identity connects legal persons and natural persons handling tax related business on behalf of enterprises. This is done through confirmation by both parties, and covers all taxpayers, and supports accurate services and management of taxpayers.
Over 80% of taxpayers use an approved digital identity to access secure digital services offered by STA including comprehensive information reporting, tax declaration and payment, certificate issuance, tax refunds, tax administrative licenses and other tax issues. Taxpayers are also allowed to authorise third parties to represent businesses and access secure digital services.
With the digital identity, the scope to save costs is increased as taxpayers only need to register in one place. This can then be recognised in other places, and the digital identity can also connect identities via across devices, and applications. It also provides the ability to allow taxpayers to choose a variety of authentication and login approaches, such as Short Message Service (SMS), ID card, digital certificate, and face recognition.
With the continuous development of the national network of digital identity, it will further provide unified and authoritative identity services for all taxpayers and tax officials to facilitate smooth progress of the digital transformation of the People’s Republic of China's tax collection and administration.
Georgia - Taxation of Digital Services
From 2021 taxable persons, who are not established, have no habitual residence, or have no permanent establishment in Georgia are obliged to register and pay VAT if they are engaged in the supply of digital services. Digital services include telecommunication, radio or television broadcasting and electronically supplied services.
To support this, the Georgia Revenue Service (GRS) designed a special platform, VAT Portal on Digital Services, for a simplified registration and reporting process. While developing this new measure, GRS studied international practice in the taxation of digital services and consulted with Business at OECD (BIAC). The VAT portal is therefore a product of intensive communication with stakeholders who contributed their experiences and views in developing simplified registration and reporting systems for VAT payers. Tax can also be paid in both Georgian Lari and foreign currencies (USD or EUR) which can be selected at the time of the registration on the VAT portal.
Sweden – Artificial Intelligence (AI) in business registration
The Swedish Tax Agency’s risk-evaluation service for business registration applications was launched in May 2021. This AI-based service categorises applications based on a set of established risk factors, and applications are then processed in different ways, depending on the category assigned.
The Swedish Tax Agency receives about 300 000 applications per year. About 70% of applications to register a business in Sweden are completed digitally, and approximately 95% of these digital applications are entirely automated.
Previously, the categorisation process was manual and very time consuming. After less than one year in operation, the first version of the risk-evaluation service has already yielded a solid return on investment with business registration process shortened by up to six days and a cost reduction of SEK 28 million (approximately 16% of the total cost of the business registration process).
Further developments took place during 2021, including the introduction of risk-evaluation support for paper-based applications for business registration. In early 2022, robotic process automation (RPA) was introduced for low-risk applications. So far, about 450 applications per week – a total of 1 300 – have been processed using RPA, further contributing to the benefits.
Sources: Canada (2022), China (People’s Republic of) (2022), Georgia (2022) and Sweden (2022).
Integration with other parts of government
Given the pivotal role that registration and taxpayer identification play in underpinning the tax system, having up-to-date tax registers will is a high priority for most tax administrations. As past editions have shown, the large majority of administrations have formal programmes in place to improve the quality of the tax register (OECD, 2019[1]).
Therefore, it is unsurprising that other government bodies may wish to use the tax administration register for their own purposes to provide services to citizens or ensure compliance with laws and regulations. This is leading to the creation of cross government databases. As Figure 3.3 illustrates, 70% of administrations report the existence of a range of available databases.
Increased integration across government became even more relevant during the COVID-19 pandemic, when a number of governments saw the potential in using information maintained by tax administrations, such as taxpayer address and bank information, to contact citizens and businesses or to make direct benefit or support payments (OECD, 2020[3]).
The pandemic has also highlighted the need for closer collaboration with other government agencies, and many administrations are integrating their IT systems to make tax registration part of other actions taxpayers undertake. For example registering for tax at the same time as registering a company or registering the birth of a child; and/or to use the same identifier to allow taxpayers to access other government services.
Figure 3.3. Cross government databases: Availability and database types, 2022
Note: The figure is based on ITTI data from 52 jurisdictions that are covered in this report and that have completed the global survey on digitalisation.
Source: OECD et al (2022), Inventory of Tax Technology Initiatives, https://www.oecd.org/tax/forum-on-tax-administration/tax-technology-tools-and-digital-solutions/, Table DM3 (accessed on 13 May 2022).
In this context, many governments are now using, implementing or considering a unique and secure identification system for citizens and businesses to allow for a greater joining-up of systems and services.
Box 3.2. Examples - Collaboration on digital identity
Argentina – Single tax registry
The development and implementation of the RUT system (Single Tax Registry), is a result of the collaboration between the Federal Administration of Public Revenue and the provincial collection agencies to improve, simplify and modernize the actions that taxpayers have to take to fulfill their tax obligations. In addition, it guarantees a higher quality of information for all Argentine tax administrations.
Previously, taxpayers had to register and maintain data in several different registries. The loading of the same data in completely different registries resulted in a loss of time for the taxpayer, and multiple errors and inconsistencies across the databases. This meant it was very difficult to conduct cross-validations between agencies.
Now, through a block chain, the data from the Federal Registry is shared in almost real-time with the participating agencies. The benefits of this federal tool are that the taxpayer does not have to upload the data to several tax administrations, leading to higher quality data which adheres to the principle of uniqueness of the data. This is also leading to a reduction in the administrative management time in the event of errors and/or inconsistencies.
See Annex 3.A for supporting material.
Australia – Whole of Government ID Programme
The Australian Government’s Digital Identity Program aims to make it easier for Australians to securely access Government online services. The Australian Tax Office (ATO) was responsible for delivering myGovID and part this was the ability to determine that a photo taken by a user of the myGovID app is of a true and live person. With user consent, the image captured is used to undertake a one-to-one match with an existing photo of the user on a stored identity document held by the Australian Government, for example a passport using the Government’s Face Verification Service. Once the match is complete the image used in the myGovID app is deleted and is not stored.
This significant improvement in Digital Identity authentication enables individuals to apply for and automatically receive a Tax File Number from the ATO or Customer Registration Number from Services Australia, allowing access to services online and in real-time. Previously, individuals needed to attend an office in person, undertake an interview and wait to receive their notification via mail. Other benefits include a reduction in the occurrence of fraud and to the burden on contact centre operations.
As a result of the digital ID programme, government agencies have seen a reduction in call volumes and manual processing and the ability to re-use functionality to streamline services. Benefits to taxpayers have been significant during the COVID-19 pandemic as they have been able to easily access government stimulus support measures, anywhere, anytime, without the need to attend an office or endure delays due to processing times.
Italy - Whole of government digital identity
In 2016, the Italian Revenue Agency has introduced the possibility for taxpayers to access the pre-filled income tax return using the Public Digital Identity System (SPID). In 2018, access via SPID was extended to all services provided in the “reserved area” of the Revenue Agency. From 2021, in addition to SPID, taxpayers may also use Electronic Identity Card (CIE). This means that, all citizens, including those authorized to operate on behalf of legal persons, can now access the “reserved area” through SPID and CIE credentials.
This means for example that SPID allows the registration of leasing contracts, the consultation of electronic invoices, the submission of pre-filled income tax returns, as well as the submission of documentation necessary to solve irregularities notified to taxpayers.
See Annex 3.A for supporting material.
Netherlands - Exploring Self Sovereign Identity (SSI)
The Dutch Government’s Digital Identity Program is exploring solutions for giving citizens and businesses highly secure digital identities as well as more control over their (personal) data. As a contributor to this program, the Netherlands Tax Administration (NTA) found two main concepts for SSI based solutions:
The first concept is based upon a Digital Identity Wallet that supports functions that include: secure access, digital signing and mandate services, and real-time data management. The first working prototype provided a validated statement of income to a citizen that can be shared at their own discretion with several (private) service providers. The conclusion was SSI can support easier tax services, enhance privacy and transparency and reduce the need for reporting and auditing.
The second concept is a Legal Entity Wallet; the NTA participated in a proof-of-concept exercise ‘Digitally starting an Enterprise’. The concept has been worked out through every step from the civil-law notary to establishing the wallet, registration at the Chamber of Commerce, the NTA issuing the VAT number ID and the opening of a bank account. The ‘enterprise wallet’ provides more certainty in the proceedings and is used to collect and share verifiable credentials. NTA expects more tax related services can be added to this wallet, creating a brand new channel of interaction.
Sources: Argentina (2022), Australia (2022), Italy (2022) and the Netherlands (2022).
Identity management
All tax administrations, whether required to by law or as a matter of sound business practice, put considerable effort into ensuring the security of taxpayer information. In addition to internal processes to prevent unlawful attempts to obtain information and to ensure taxpayers’ rights are protected, all administrations have processes to ensure the person they are dealing with is in fact the taxpayer. Increasingly these approaches, which in many instances have now been extended to multi-step authentication, are making use of biometric information, unique to the taxpayer.
Tax administrations face similar challenges to other organisations in dealing with individuals or organisations that may misuse personal information to impersonate taxpayers in order to commit fraud. The on-going and, in many cases, organised nature of this activity is requiring administrations to devote considerable effort to the prevention of identity theft through staff training and increased security. Box 3.3 contains examples of the work tax administrations are doing in this respect.
Box 3.3. Examples – Identity management
Canada - Multi-factor Authentication
In response to increasing cyber-attacks, the CRA enhanced its security with the introduction of multi-factor authentication (MFA) to the 14.6 million online account holders. Initially, MFA was implemented only allowing for one-time passcodes to be issued by SMS or through a voice message to those with a North American phone number.
Once implemented, it became clear that this MFA solution did not fit all users. CRA received feedback from segments of the taxpayer population, such as those without a phone, those with only international phone numbers and business communities. The CRA held further dialogue with its stakeholders to understand their challenges and barriers.
As a result of these discussions, the CRA developed a supplementary non-phone method of MFA, the passcode grid (PCG). The PCG is a printable, randomly generated grid of characters, similar to a bingo card. For those that choose this method, users are prompted for the characters from various coordinates on this grid at each login.
With the implementation of this enhancement, the CRA is able to retain a strong security position but also respond to user needs such that all Canadians are well served. With the addition of the PCG, the CRA was able to achieve its security goals and adopt mandatory MFA for 100% of its users.
Finland - Security awareness
E-mail phishing has been recognised as a constantly evolving security threat in the Finnish Tax Administration (Vero). Since phishing can potentially affect all staff, Vero has started to use automated, gamified phishing simulations to make staff more resistant to phishing attacks.
The awareness program teaches users to identify and report malicious e-mails. The training does not require much time. On average, users receive a simulation e-mail every other week, taking 3-5 minutes of their time. Simulations are sent directly to users' inboxes, users report them and receive a micro training in the portal if they wish. As staff members can never know which emails are part of the training and which are genuine, the simulations make security awareness a part of everyone's daily work life thus keeping them alert at all times.
In practice, users are asked to report all suspicious e-mails via a simple reporting button, available upon installing in their Outlook programme. The threshold for reporting is very low, and the game develops with the users: the more e-mails you report, the harder they become for you to identify. Using the same reporting button for all suspicious e-mails helps Vero catch genuine phishing as well as train the staff.
The automated gamified phishing simulation tool has proven to be very effective, with Vero successfully catching real threats due to early reporting. Furthermore, as the tool takes care of the content of the simulation messages, so Vero does not have to use much time or other resources to create new material.
United States - Secure Access Digital Identity (SADI)
In 2021, the Internal Revenue Service (IRS) accelerated the development and launch of Secure Access Digital Identity (SADI) as a new online identity verification platform for accessing self-help tools on the IRS.gov website. SADI was designed and implemented as the next generation identity proofing solution to improve taxpayer access to IRS online services while also meeting digital identity guidelines established by the National Institute of Standards and Technology.
This new process is revolutionising how the IRS identity proofs and authenticates taxpayers by implementing a federated approach to authentication that includes working with a third-party Credential Service Provider (CSP). CSPs are trusted technology providers that conduct identity proofing and credential management services for access to digital services, now including IRS online tools. This federated approach allows taxpayers to access applications across different, participating agencies using a single set of credentials trusted by multiple parties. It also extends access to more users by offering an expanded set of documents to verify identities, as well as offering improved help desk services and support for multiple languages.
The IRS is in the process of migrating all online protected applications behind the modernised SADI platform. From 21 June 2021 through 31 December 2021, 5.9 million taxpayers successfully created their SADI credentials, which accounted for 23.1 million online sessions, making this IRS program the largest digital identity federation in US history.
Sources: Canada (2022), Finland (2022) and the United States (2022).
Common approaches to Digital identity
Once the domain of multi-national businesses and those involved in international trade, small and medium-sized enterprises and individual taxpayers are now increasingly earning income sourced outside their jurisdiction of residence. As a result of the proliferation of online market places and sharing and gig economy platforms, it is now easier than ever for example, to rent out holiday homes or sell goods abroad through online platforms.
Tax administrations are facing a raft of issues in supporting and responding to this growth in cross-border activity, including how they manage taxpayer information flows across borders. Previous editions of the tax administration series (OECD, 2019[1]) highlighted two international measures aimed at helping administrations to address these issues:
The European Union’s Electronic Identification Authentication and Trust Services (eIDAS) approach, which was introduced in 2014 and aims at increasing the confidence taxpayers and tax administrations can have in dealing with information flows and being able to manage identity and registration issues across borders.
The global standard on Automatic Exchange of Information (AEOI) – the Common Reporting Standard (CRS), which together with the United States Foreign Account Tax Compliance Act (FATCA) provides for the exchange of non-resident financial account information with the tax authorities in the account holders’ jurisdiction of tax residence.
Following the 2019 OECD report The Sharing and Gig Economy: Effective Taxation of Platform Sellers (OECD, 2019[4]), the OECD published in 2020 a set of Model Rules that set the framework for digital platforms to collect information on the income realised by those offering accommodation, transport and personal services through platforms and to report the information to tax authorities. A key objective for the Model Rules is to help taxpayers be compliant with their tax obligations, and to provide a consistent framework to help business provide information to tax authorities. This supports the Model Rules goal of streamlining reporting regimes for tax administrations and platform operators alike. (OECD, 2020[5])
Around the same time, the OECD Tax Administration 3.0 report (OECD, 2020[6]) identified the seamless taxation of platform sellers as a key action for multilateral collaboration. Work is currently ongoing to explore how co-operation between administrations and platforms can be deepened to explore the integration of identification and reporting processes into the applications used by the platforms in order to support tax compliance by platform sellers as well as reducing burdens for all parties.
More generally, common approaches to digital identity that are shared across government, and between government and third parties, will increasingly allow new services to be developed. These services can reduce burdens on taxpayers as third parties can supply information direct to tax administrations, as well as providing richer and more accurate pools of data to tax administrations.
Box 3.4. Canada - Third party authorisations
To help taxpayers protect their personal and tax information, the CRA recently introduced a new digital two-step verification process to confirm the authorization of third-party representatives in its digital portals. This change made it easier for individuals and businesses to confirm who can access their personal and tax information and help them play an active role in protecting this information. Whether the taxpayer is an individual or a business, they can now confirm third party requests for access to their personal and tax information by signing in to the secure portals, without waiting for a confirmation call from the CRA.
For all but a few exceptions, this innovative process saved the CRA from having to contact individuals and businesses by telephone to verify requests for authorizations received, saving time and resources on the part of both the CRA and its clients. With this new process, individuals and business owners can confirm the requests on their own time and representatives are able to track the status of their requests online.
Before the process was implemented, additional staff needed to be hired and trained to handle the number of confirmation calls that needed to be made. Since its implementation, the amount of confirmation calls required have decreased by 88% (or 5 278 total calls made since implementation versus 42 314 calls over the same period last year).
Source: Canada (2022).
References
[5] OECD (2020), Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy, OECD, Paris, http://www.oecd.org/tax/exchange-of-tax-information/model-rules-for-reporting-by-platform-operators-with-respect-to-sellers-in-the-sharing-and-gig-economy.htm (accessed on 13 May 2022).
[6] OECD (2020), Tax Administration 3.0: The Digital Transformation of Tax Administration, OECD, Paris, https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/tax-administration-3-0-the-digital-transformation-of-tax-administration.htm (accessed on 13 May 2022).
[3] OECD (2020), “Tax administration responses to COVID-19: Assisting wider government”, OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris, https://doi.org/10.1787/0dc51664-en.
[1] OECD (2019), Tax Administration 2019: Comparative Information on OECD and other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/74d162b6-en.
[4] OECD (2019), The Sharing and Gig Economy: Effective Taxation of Platform Sellers : Forum on Tax Administration, OECD Publishing, Paris, https://doi.org/10.1787/574b61f8-en.
[2] OECD (2017), Tax Administration 2017: Comparative Information on OECD and Other Advanced and Emerging Economies, OECD Publishing, Paris, https://doi.org/10.1787/tax_admin-2017-en.
Annex 3.A. Links to supporting material (accessed on 13 May 2022)
Box 3.2. – Argentina: Link to a flowchart that illustrates the process of updating registry data: https://www.oecd.org/tax/forum-on-tax-administration/database/b.3.2-argentina-rut.pdf
Box 3.2. – Italy: Link to a website with information on how to access online services using the digital identity: https://www.agenziaentrate.gov.it/portale/web/english/how-to-access-the-online-services.