IIAC's How Is Technology Transforming Tax Compliance Operations?

How Is Technology Transforming Tax Compliance Operations?

On November 14th, TAINA’s Tax SME Sean Sutton joined a panel to speak to the Investment Industry Association of Canada (IIAC) group around the incorporation of AI in the Tax Compliance space. Sean and the other panelists, Amy Harkins (Broadridge) and Guy Vadish (Artiffex), discussed the current landscape and future potential of AI and technology in the tax compliance field. The 1.5-hour session, structured around questions asked by moderator Simon Lee (CIBC Mellon), offered valuable insights into how businesses can leverage AI to enhance their tax compliance processes.

Current Landscape of AI and Technology in Tax Compliance

The panel began with a discussion on the current state of AI and technology in tax compliance. Panelists highlighted the differences between machine learning and generative AI, the handling of structured versus unstructured data, and the importance of data security, whether shared externally or kept within the system. The primary categories discussed in current use include:

• Automation and Efficiency

  • AI is revolutionizing tax compliance by automating routine tasks such as data entry, document review, and tax calculations. This automation not only reduces the time and effort required but also allows tax professionals to focus on more complex and strategic tasks.

• Data Management

  • Data analytics are transforming how data is managed. These tools can process vast amounts of unstructured data, categorize it, and present it meaningfully, which is crucial for accurate tax reporting and compliance. Tax authorities using their own technology to comb through data volumes and flag potential audits.

• Enhanced Decision-Making

  • By providing deeper insights into tax data, AI supports better decision-making, helping tax professionals optimize tax strategies and improve overall financial performance.

• Risk Management

  • AI's predictive capabilities enable it to identify anomalies and potential risks in tax data, allowing organizations to address issues proactively and avoid penalties.

Tasks Suitable for AI Automation

The panel also spoke to existing processes that are beneficial for automation. Speaking from their experience, the panelists outlined the following which have been successfully implemented and could apply to medium and large financial institutions:

• Data Entry and Classification

  • Automating data extraction and classification from various sources reduces manual entry and minimizes errors.

• Document Review:

  • Can review tax documents, identifying discrepancies or missing information.

• Compliance Monitoring:

  • Continuous monitoring of tax regulations ensures that practices remain compliant with the latest laws. There is still a need for a professional to review and interpret laws, but technology can help flag and develop requirements for any system changes.

• Risk Assessment and Anomaly Detection:

  • Analyzing large datasets to identify anomalies and potential risks helps organizations address issues proactively.

• Creating Returns:

  • Automated systems can prepare tax returns, ensuring all necessary information is included and deadlines are met.

• Generating Reports:

  • Generate detailed reports, providing insights and summaries that aid in decision-making and strategic planning.

Benefits and Challenges

A series of questions from the moderator asked for the benefits and challenges of different components firms needs to consider when making changes. The panelists took turns addressing each side to help establish what a firm should consider when looking to use AI in the future.

Cost

• ​Benefit: 

  • ​Reduce the cost and time involved in tax compliance by automating routine tasks and reallocating resources to more complex tasks.

• Challenges: ​

  • Team resources need to learn more about AI.

  • Costly to change systems to incorporate AI.

Errors

• ​Benefit: ​

  • Improves the accuracy and efficiency of tax compliance processes by eliminating typos and misspellings

• Challenges: ​

  • AI can hallucinate its responses

  • Need robust QC to verify outputs

Regulatory Compliance

• ​Benefit: ​

  • Help track and implement these changes

  • Implementation across multiple jurisdictions can reduce complexity of diverse regulatory requirements

• Challenges: ​

  • Tax professionals are still needed to analyze and interpret

Ethical and Legal Considerations

• ​Benefit: ​

  • Fraud detection improves looking for anomolies in data

  • Improved accessibility

  • Reduces biases decision making based on data

• Challenges: ​

  • Collection and sharing of Firm’s intelectual property

  • Collection and sharing of customer’s personal identifying information

  • Customer security is different across jurisdictions

Looking Forward

The panel anticipated significant future innovations in AI and technology that will impact tax compliance, including more advanced data analytics, improved AI algorithms, and greater integration of AI with existing tax systems. Small and medium-sized enterprises (SMEs) can leverage AI to remain competitive by using vendor solutions as cost of building in house too prohibitive.

Despite AI's capabilities, human tax professionals will continue to play a crucial role in ensuring compliance and addressing complex tax scenarios. The relationship between AI tools and human expertise is expected to evolve, with AI handling routine tasks and humans focusing on strategic decision-making.

Advice for Companies

For businesses looking to integrate AI into their tax compliance functions, the panel offered the following advice:

• Conduct a Skills Assessment:

  • Evaluate the current skills of staff and identify areas for improvement.

• Foster a Culture of Continuous Learning:

  • Encourage ongoing education and training in AI and technology.

• Develop a Strategic Plan:

  • Create a roadmap for AI integration, starting with pilot projects.

• Ensure Data Quality:

  • Maintain high data quality standards to maximize the effectiveness of AI tools.

• Leverage AI for Time-Sensitive Updates:

  • Use AI to address limited time constraints, such as last-minute regulatory changes.

By following these steps, businesses can better manage a path to integrate AI into their tax compliance processes, enhancing efficiency, accuracy, and overall performance.

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