Tax transformation: Adopting AI to drive efficiencies

While AI can equip teams with tools to gather and organize data more efficiently, it is more than simply a tool to streamline processes. Implementing AI involves redefining operational frameworks within organizations. Where previously, people executed processes powered by technology, we are now moving toward a model where processes are executed by technology but still are managed by people. In other words, in tomorrow’s AI-driven world, technology powered by AI may execute processes, but people will still be in charge.

Historically and currently, a staff-level team member may complete most of the tax compliance preparation work, which then goes through layers of review. In the future, AI will do much of the preparation work, and the staff will monitor the AI and review the initial outputs. Fewer levels of review may be required because of the consistency in the AI outputs, and the AI can help the reviewers focus on the areas that add the most value or present the greatest risk. The process, the roles and the ordering of tasks will need to change to take full advantage of the transformative power of AI.

Separate but closely connected to tax compliance are the Accounting and Finance functions. These functions, which will also be undergoing operating model changes, are the source of much of the tax data. In the 2023 EY Tax and Finance Operations survey, 96% of businesses say they are transforming their tax operating models. Tax needs a seat at the table so that its needs are addressed and so that new technological enhancements can be leveraged across functions.

AI IN PRACTICE: It can take multinational companies weeks, multiple team members and laborious manual processes to map general ledger (GL) accounts for tax purposes. The steps generally include extracting the data from multiple countries and populating spreadsheets, manually mapping the GL accounts into a database, identifying inconsistencies among countries and issues to report back to countries, correcting errors, repopulating the database manually and then finally having a team leader review the results. GenAI-assisted automation can streamline this process into just a few steps. GL account data is extracted and ingested by the GenAI-enabled tool, which standardizes and maps it based on pre-vetted prompts in near real time, and a qualified team member reviews the results. In this way, a labor-intensive task can be transformed into an automated, two-day process supplemented by human review.

There is little doubt that tax authorities and regulatory bodies will begin harnessing AI to analyze tax data and returns. Tax authorities could use AI to identify risk areas and ask more targeted questions. Some countries already require companies to provide GL data to tax authorities monthly. Access to that data, combined with the power of AI, could fundamentally change how tax authorities perform examinations in the future.

For business taxpayers, this could mean more regular requests and specific questions driven by AI-enabled analytics. Tax departments will need to be proactive in doing their own analysis to be responsive to these requests. Thus, as AI becomes more mainstream, the urgency for businesses to keep pace will accelerate. As governments adopt these practices, companies will want to make sure they are adapting accordingly and in sync with those efforts. Companies could be using AI to gather data more consistently and efficiently, tailoring their analytical analysis to what is being requested, and highlighting discrepancies and variances to improve the overall quality of their tax filings.

AI IN PRACTICE: The Colombian tax authority Directorate of National Taxes and Customs (DIAN) has introduced electronic notifications to improve tax compliance, using a system that compares electronic invoice incomes with value-added tax (VAT) returns to facilitate accurate tax reporting. An AI-enabled tool is able to support companies in this process by extracting data from various documents, including VAT return PDFs, to facilitate reconciliation between electronic invoices, VAT returns and other financial records. The tool conducts a thorough analysis to identify discrepancies, adjusting for pricing variations and other financial changes, and generates detailed reports to aid in accurate tax filings and compliance with DIAN’s requirements. This automation and streamlining of tax compliance encourages proactive practices, preserves supporting documentation and helps companies meet deadlines. It is likely to become increasingly relevant as notifications are expected to expand beyond VAT to include income tax and other tax obligations.

The value in AI lies not in replacing human workers with machines but in using technology to automate and accelerate routine compliance work that used to be done manually and to focus review and analysis on the most consequential areas. According to the EY 2023 Work Reimagined Survey, both employers and employees show enthusiasm for GenAI, with a net positive 33% expecting it will boost productivity and new ways of working. These kinds of potential efficiencies can empower tax compliance professionals, allowing them more time to work on higher-value and more strategic tasks. 

AI can also be used to enhance these higher-value, strategic tasks. The real value emerges from the human workforce’s adaptability to the technology, integrating its use into daily routines to actualize a more streamlined and productive business model. This is where learning and skills development will play a key role. The rise of AI and GenAI has broadened access to the technologies, and many employees see value in helping them be more productive and efficient. However, three in four employees are concerned that AI will make certain jobs obsolete, and 65% say they are anxious about AI replacing their jobs. 

It will be up to company leaders to make sure Tax teams are equipped with the training to make the most of the new technologies as they become available, and that company culture and values are considered. To draw on an example from the past, at some point there was a shift from using an adding machine to spreadsheets. Some practitioners held onto their computer’s numeric keypads (e.g., 10-key) as long as possible, while others embraced the power of the new spreadsheet technology. A more recent example would be the shift from cell phones to smart phones, which revolutionized communications by putting the power of digital workday management into users’ hands vs. having to be at a computer. We are at another technological inflection point, and those who embrace AI to empower and enhance their performance could leap forward in their ability to add value.

AI IN PRACTICE: According to the recent 2024 Work Trend Index Annual Report², organizations are shifting toward hiring non-technical talent with AI aptitude, e.g., they are seeking candidates who have the skills to use GenAI in their everyday work. According to the study, 71% of organization leaders would rather hire a less experienced candidate with AI skills over a more experienced candidate without AI skills. Additionally, over three-quarters of leaders indicated that junior candidates with AI skills would be given greater responsibilities.

² Microsoft and LinkedIn, 2024 Work Trend Index Annual Report: AI at Work Is Here. Now Comes the Hard Part

Questions for companies to consider 

• How can we implement and manage AI within our current structure?
• How can leveraging AI expand our capabilities and transform our processes?
• What may be preventing us from embracing technological change?
• What shifts do we need to make in our training, culture and governance to drive value from AI?

Summary 

AI tomorrow: what’s next

Artificial Intelligence (AI) is revolutionizing tax compliance by offering innovative frameworks and tools to tackle present and future challenges. No longer just a futuristic idea, AI is actively changing traditional approaches and now is the time to embrace this change for sustained growth benefits.