How is AI Devising Improved Tax Operations?

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How is AI Devising Improved Tax Operations?

Sarah Dawson, CFO Tech Outlook | Saturday, May 21, 2022

The use of AI has hit the complex world of taxation, and it can help reduce the workforce and burden on humans.

FREMONT, CA: To manage the evolving tax landscape, alongside the increased use of analytics, tax professionals and tax advisors are beginning to explore the possibilities for implementing sophisticated data analytics and Artificial Intelligence (AI) in tax to manage compliance and assist professionals and their clients with commonly encountered queries. AI in tax is a relatively new phenomenon, and it has many opportunities to offer for the tax landscape. Know more here.

Tax teams spend a lot of time on foundational activities like classification, taxonomy, and data extraction. AI can accelerate analyzing tax documentation—identifying the sender and defining the useful data—and inputting the relevant data into a software system. Tax practitioners usually perform classification activities manually, which takes up lots of time. Machine learning tax algorithms can be used to search for and identify assets incorrectly booked into individual accounts by an organization’s finance team, based on historical classifications the team has made.

Referred to as predictive modeling, AI applications are now being used by tax agencies to find cases having features that could indicate potential fraud. It often considers subtle clues hidden in mounds of data that are sometimes missed or overlooked by auditors. The enormity of the tax code and the complexity of the rules themselves make it complex for any firm to stay compliant, reduce their tax liabilities. Therefore, AI is well suited for tasks that need an in-depth analysis of the code. Using previous tax documentation as a foundation for learning, AI application has an in-depth understanding of the tax code and stays on top of changes. As a result, it is easier for tax practitioners to identify critical areas for savings.

For organizations that operate globally, transfer pricing involves comparing several pricing structures and identifying transactions for ensuring fairness in operations. Auditors are using artificial intelligence to simplify that comparison process. Instead of having members of the tax team manually search databases for companies, an AI application can automate that task. Auditors are also working on using AI tax software to estimate transactions, which will save additional time.

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