AI: Reshaping the Future of Tax

On 4 September 2024, Deloitte hosted the latest event in its Tax Directors Academy programme, focusing on the topic of Artificial Intelligence with guest speakers Conrad Young, Advisory Board Chair and Visiting Policy Fellow at the Oxford Internet Institute, and Matt Vick, Head of Futures & Innovation at HM Revenue & Customs.

At the event it was recognised that the infusion of Artificial Intelligence (AI) has the potential to revolutionise the tax function, ushering in an era of unprecedented efficiency, accuracy, and transformation.

AI encompasses a range of technologies, including rules-based logic systems as well as Machine Learning (ML), that enable machines to perform tasks that typically require human intelligence. 

The Evolution of Tax Administration
 

Tax authorities are increasingly embracing digitalisation, moving from paper-based systems to sophisticated electronic platforms. 

This shift is evident in initiatives such as e-filing, real-time reporting, and the use of AI to detect fraud and enhance compliance. The Organisation for Economic Co-operation and Development (OECD) has outlined a vision for Tax Administration 3.0, which envisions a future where tax compliance is seamlessly integrated into natural systems.

AI Use Cases in Tax
 

The potential applications of AI in tax are vast and span across various areas. In our recent report “Generative AI: What should Tax Directors be thinking about?” we highlighted several use cases for the application of the technology, which were also reinforced by the expert panel at the event. These included:

• Tax Compliance: AI can automate tasks such as data extraction, reconciliation, and tax return preparation, reducing errors and freeing up tax professionals to focus on more strategic activities.
• Tax Planning and Analysis: AI-powered tools can analyse complex tax laws, regulations, and case precedents to identify optimisation opportunities and assess the tax implications of business decisions.
• Tax Audit and Dispute Resolution: AI can assist in identifying high-risk transactions, predicting audit outcomes, and supporting the preparation of robust defence strategies.
• Tax Research and Knowledge Management: AI can help tax professionals stay abreast of ever-changing tax laws and regulations by providing quick and easy access to relevant information and precedents.

But, as with any new technology, there are risks that require humans to closely review and translate the output to meet the needs of the business. Hallucinations, privacy issues and transparency are all important hurdles to overcome in successfully deploying AI.

There are solutions in the immediate term (such as private LLMs and Small Language Models) and in the medium to long term (such as more robust regulation and governance) which will aid businesses to safely and ethically deploy AI as part of their day-to-day work.
 

The AI-Infused Future of Tax
 

Looking further ahead, the future of tax is likely to be characterised by two key landmarks for both businesses and tax authorities:

• Embedded Tax Compliance: Tax rules will be integrated into everyday business systems, enabling real-time tax determination and streamlined compliance processes.
• Data-Driven Decision-Making: AI will provide tax professionals with deeper insights from vast datasets, facilitating faster but more informed decisions.

Both developments can potentially aid with execution of strategic priorities, real-time reporting and, potentially, real-time transparency and compliance.
 

The role of the advisor and the technology vendor
 

In enabling business to intelligently transform, effectively deploy AI and, critically, Generative AI, advisers will need to stay abreast of the variety of use cases and partner with businesses to identify the data required to enable them.

They will also be required to collaborate with senior tax decision makers on the guidance within Tax Administration 3.0 and how their technology and finance roadmap will need to converge to meet the regulations.

For technology vendors, many have AI built into their suite of assets to varying degrees. It is about how they are utilised and adapted for specific tax use cases to enable them to meet the ambition of their clients that will be critical to the finance functions successfully leveraging their technology.
 

What next for Tax Directors?
 

Deployment of artificial intelligence and the Digital Administration of Tax 3.0 are certainly two key areas businesses will retain on agendas for the near and medium term.

Consensus from our event was that whilst we don’t know completely what the future will hold, understanding the potential impact of AI and related technologies, engaging with evolving global policy as well as within the broad finance function to enable process efficiency are critical areas Tax Directors need to act on now.