Italy steps up AI to Combat VAT Fraud and Strengthen Tax Enforcement
The Italian Tax Authority, Agenzia delle Entrate, is intensifying its use of artificial intelligence (AI) to close the VAT gap and strengthen its tax enforcement framework. This strategic shift is aimed at addressing persistent challenges in detecting non-compliance and optimising audit resources.
The Revenue Agency has recently launched an AI-powered chatbot to strengthen tax audits by identifying VAT discrepancies, especially among small businesses. Developed with Sogei and the Finance Department, it analyses data in real time to better target potential VAT evasion.
See how other tax authorities adopt AI for the detection of VAT fraud. And you can see how we at VATCalc are already using it to generate AI VAT advice and item classification or tax codes to get the right taxing rates, country, exemptions and return reporting. The EU Parliament backed VAT AI adoption in a recent report.
Itlay’s evolving AI adoption
Italy was relatively late in adopting AI for tax purposes compared to its Western European counterparts, with minimal public references to AI systems before 2019. However, since 2021, the Italian Revenue Agency has accelerated the development of its technological capabilities, deploying several machine learning tools—often with financial and technical backing from the European Union.
Key AI applications in VAT enforcement
One of the cornerstone tools is VeRa, an AI algorithm focused on risk detection. It cross-references taxpayer filings with earnings, property records, bank accounts, and electronic payment data to identify anomalies and potential non-compliance. In 2022 alone, VeRa reportedly flagged one million high-risk VAT cases, preventing several billion euros in tax fraud.
Another core function of the AI system is risk scoring—assigning each taxpayer a risk profile based on historical behavior. This allows the agency to prioritize audits and tailor its compliance strategies accordingly.
In 2023, the Revenue Agency introduced an AI-powered chatbot to support audit processes. Developed in collaboration with Sogei and the Department of Finance, the system can analyze tax returns in real time, detect inconsistencies—especially among self-employed individuals—and identify risks associated with irregular accounting practices.
The AI tool enhances traditional audit approaches, which rely on automatic, formal, and merit-based checks, by introducing real-time data analysis and complex pattern recognition. It is capable of aggregating and interpreting VAT data across demographic, geographic, and economic dimensions—tasks previously performed manually by agencies like Istat.
Legal and ethical considerations
While these systems operate without specific AI-targeted regulations, the Law No. 111 of 9 August 2023 grants the Italian Revenue Agency broad authority to use AI for detecting and preventing tax evasion. Nevertheless, concerns regarding data privacy and algorithmic fairness have prompted authorities to stress their adherence to national data protection standards.
