German tax authority may train AI on citizens’ unaltered data
The German government is mulling allowing new AI systems to be trained on unaltered citizens’ data, despite it currently being prohibited by European privacy regulations.
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In Germany, the Annual Tax Act 2026, proposed by the Federal Ministry of Finance, plans a widespread rollout of AI in tax offices.
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The new AI systems would be trained on unaltered citizens’ data, which is currently not permitted under the General Data Protection Regulation (GDPR), the landmark EU data protection law.
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The Ministry says training AI on fictitious data leads to inaccurate results
The Federal Ministry of Finance has introduced a draft of the Annual Tax Act 2026, stating that the rollout of AI in the country’s tax offices would help efficiently manage complex German tax law in the digital age, Heise.de reports.
The Ministry hopes that AI will help alleviate administrative burdens and speed up the processing of tax returns.
Simplification, however, would come at a price, as sensitive taxpayer financial data would be used to train these AI models.
Until now, the purpose limitation principle of the General Data Protection Regulation (GDPR), the landmark EU data protection law, has prevented the government from using real citizen data to train automated systems.
More specifically, the proposed amendment to Section 29c of the German Tax Code would give legal permission to use real, unaltered tax data for the development, testing, and modification of automated procedures, according to Heise.de.
The rationale behind the proposal is that training AI with fictitious data is ineffective, leading to inaccurate results.
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Given the sensitive nature of financial data, the proposal includes a protective measure: the irrevocable deletion of personal training data no later than one year after the end of training.
The Ministry says that AI in tax proceedings will serve only as an auxiliary tool, with decision-making authority remaining in the hands of human workers.
AI is increasingly used to help with taxes
Multiple European tax authorities have adopted AI to simplify tax returns and make them more transparent, according to a report by the International Bureau of Fiscal Documentation (IBFD), a non-profit foundation.
The Spanish Tax Agency uses automated systems to warn of potential errors when filing taxes and to detect and predict taxpayer non-compliance, while in Belgium, AI is used to monitor, flag, and block suspicious VAT transactions.
The French Tax Administration has integrated AI into its property tax system, using aerial imagery and machine learning to detect undeclared swimming pools, property extensions, and other taxable assets.
However, the IBFD warns of significant privacy and security risks stemming from tax authorities’ use of AI, as they handle large volumes of sensitive and personal data that can be leaked or misused.
In addition, the foundation emphasizes that AI biases can lead to unfair treatment of taxpayers due to flawed or incomplete training data.
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