Risk Management Guide For Tax Administrations

Since 2004 a Fiscalis Risk Analysis Project team has been working on the development of a Guide on Risk Management for tax administrations. This is a Guide prepared by tax officials for tax officials.

Introducing Risk Management

Risk Management is part of our subconscious behaviour which guides us in making the best possible choices each time we have to make a decision. Usually, this can be seen as a human instinct, for instance when we have to make a choice between the different line-ups at the post-office, where we detect the shortest line, the least likely troublesome clients, etc.

As no other, tax administrations have to deal with large numbers of risks. This may concern either risk of non-compliance including risk of tax fraud, risk of insolvency by the taxpayer etc. Risk Management allows us to deal with these risks. The term 'risk management' can have many different meanings dependent on the area in which it is used but all have one thing in common in that it helps us to treat risks which appear to threaten our missions but which also can provide us with a quality assurance for our actions.

The objective of applying Risk Management in this context is to enable a tax administration to accomplish its mission(s) by facilitating management to make better decisions. The Risk Management process helps to identify the different steps in the decision-making process, and allows us to make explicit and more educated decisions, in each stage of the process before moving on to the next one. As a result, Risk Management allows us to better measure the quality of each of the individual stages of the decision-making process, making it easier to detect mistakes.

Furthermore, Risk Management helps us to:

• achieve equal treatment of the taxpayers;
• focus the burden of audit to non-compliant taxpayers;
• best use of the available human, financial and technical resources;
• increase the level of voluntary compliance of taxpayers;
• adjust available resources to the levels of risks;
• weigh the possibilities that a compliant taxpayer could become non- compliant.

In the context of this Guide, Risk Management can be defined as a technique to improve the tax administration’s effectiveness in dealing with risks. This may result in measures aimed at avoiding non-compliance by taxpayers, or when it is decided that active treatment is required, better targeting of the available treatment options.

As such, this Guide provides a common foundation for decisions at all management levels within tax administrations, where each has to make the most educated decision about budgets and resources.

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