Top trends for tax technology in 2024 and beyond

Data analytics, generative AI and other tools are shaping tax ecosystems

Sep 11, 2023

As generative artificial intelligence (AI) inspires the mainstream, the tax world shares the exhilaration. That future state in which tax departments contribute primarily to businesses’ profits instead of costs? It’s closer to reality than ever because of these promising tools and their role in the broader scope of digital transformation.

How your tax department approaches generative AI and other advancing capabilities, such as data analytics, robotic process automation and machine learning, will go a long way toward determining whether your tax function serves as an engine or an anchor for your organization.

Consider these five ideas when strategizing about the ongoing digital transformation of your tax function and shaping your approach to being a value-creation center:

1. Tax technology is an ecosystem, and so is your tax function at large

Not too long ago, the phrase tax technology implied a point solution. Need help with your international tax compliance? There’s software for that. Payroll tax? Yep, software for that, too.

Over time, though, the tax world has learned firsthand that integrated systems are essential for achieving efficiencies, fostering growth and maximizing the value of data. And as systems have advanced to feature the ability to integrate via the cloud, tax technology has come to represent something more powerful. It’s a network of systems, as well as the people who work with them and the processes by which they do their tax work. Tax technology, now, is dynamic, complex and evolving. It’s alive.

That paradigm shift applies to your tax function too. As your tax technology strengthens mutualistic relationships with systems and people across your enterprise—for example, finance and human resources—your tax department does also. This evolution brings tax into your organization’s strategic core.

These ecosystems exist regardless of whether your tax function is a small, in-house operation, fully outsourced or anywhere in between. Perhaps you’re tapping into your third-party tax vendor’s capabilities to solve business issues centered outside of tax, such as cybersecurity. Or maybe your in-house tax function works with software companies to upgrade the digital tax applications that are foundational to your business.

Whatever the case, interconnectivity between people, processes and tools—true ecosystems—is enhancing how your tax function delivers value for your organization.

2. Data management is the lifeblood of these ecosystems

As tantalizing as generative AI may be, gains from it will remain out of reach if you fail to manage your data effectively. If anything, fantasies of how generative AI will transform our world are a reminder of a familiar mantra: garbage in, garbage out. Digital tax tools are only as effective as the quality and timeliness of the data you’re feeding into them.

Your tax software may be seamlessly integrated with your organization’s finance systems, but if your data isn’t in a format that can be accessed or analyzed, or if it’s old and stale, the tools won’t produce what your stakeholders need.

Ideally, organizations would have an enterprise data repository that features the level of detail that tax tools require to ask and answer questions. However, that often isn’t realistic, so the next best thing may be to ensure your enterprise-level books and records software at least has the meta data needed for tax; then integrate a tax application that automatically applies your tax rules. This allows for your data to be reusable and tees up more real-time analytics.

3. People and processes—not just digital tools—will determine the success of your tax function’s digital transformation

For tax technology to thrive in your enterprise-level ecosystem, your people—from the C-suite to the staff—have to recognize the upside. How do automation and AI support business objectives? How do digital applications make individuals’ daily work easier? This understanding is central to establishing a data-driven culture.

Given that you have varied data literacy and skills within your organization, you foster the culture by supporting people at whatever level they are.

On one hand, you have to upskill the data illiterate to a baseline that enables conversations and understanding. At the same time, training programs should inspire curiosity and facilitate exploration in those who are eager to use data in their processes. By giving them tools and access to data—within governance and security guardrails, of course—you can cultivate an army of data champions who discover use cases, efficiencies and insights that power your digital transformation.

4. Building your foundation in generative AI begins now

It’s easy to become wide-eyed envisioning the ways in which generative AI may support tax functions in the future. Prescriptive analytics, risk assessments, optimized tax planning—it’s all intriguing and exciting.

More immediately, though, you can act now to begin embracing and applying generative AI. These steps can breed familiarity, understanding and support among your people, and position you to continue to take advantage of these capabilities as they evolve.

An appropriate starting point for any organization is to develop a plan for usage that covers legal elements, such as privacy and risk. This plan scans your organization for the most repeatable, inefficient tasks to which applying generative AI could add value.

Then, identify a specific and contained tax area that allows you to dip your toe in the water. Again, look for an area where you have high-quality data to which you could apply a large language model to get some quick, promising results.

For example, take transfer pricing. You may be able to apply a large language model against your data to come up with either tax planning insights or predictive insights about trends that will affect your decision making.

You don’t need to pour resources into building language models yet. But five years from now, tax departments using generative AI effectively will look back and appreciate how failing fast and learning quickly established their foundation for that success.

5. By enabling decision making, tax becomes a strategic pillar of your organization

One of the simplest ways to characterize the digital transformation of a tax department is the shift from a business function that looks backward to one that looks forward.

Advances in automation, AI, data visualization and other familiar technologies have changed the questions tax departments ask of data. We’ve gone from “What happened?” to “What will happen if…?” This maturation in data analytics capabilities is ongoing, with generative AI fueling the next big leap.

With the combination of data-savvy professionals, good data management processes and powerful digital tools, data will enable more effective decision making. It will be more efficient, cost-effective and informed.

And as more people realize the value in this, support will grow within tax technology and enterprise ecosystems to strengthen all the components. There is no end point to that, only the evolution of tax as a strategic driver of your organization.

RSM contributors

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