Artificial intelligence and ERP systems are a critical way to optimize data management and streamline tax operations in corporate tax functions
Corporate tax departments face many challenges in today’s complex and dynamic tax environment, having to deal with large volumes of data from various sources, ensure accuracy and consistency in tax reporting and compliance, and keep up with changing tax regulations.
To do their job most effectively, many corporate tax departments must gather information from throughout the business — and doing so often can be another kind of challenge. That’s why many tax departments are using or are considering using Enterprise Resource Planning (ERP) systems to help them structure and manage their tax data.
The role of ERP systems
ERP systems are integrated software platforms used by organizations to manage day-to-day business activities such as accounting, procurement, project management, and supply chain operations. For corporate tax departments, an ERP system can offer a centralized repository for all the data they have gathered from the many different internal functions or units within the overall business.
In fact, there probably isn’t a single business — particularly large and midsize ones — that doesn’t have at least one ERP system in use. Indeed, many organizations use several, and in some cases each individual corporate department will have their own or a different version based on the needs of the team.
Now, imagine how the tax department must go about gathering necessary information from each business unit and find a way to consolidate all that financial data from various departments into a single system. Not surprisingly, an ERP system quickly becomes one of the most critical tools for the tax department to use.
Yet, there are other benefits of using an ERP system, including the ability to automate manual data entry and reconciliation and other routine tasks. In addition, by using an ERP system that is connected to the overall business the tax team can then receive real-time financial information. And that can be critical, because when a change is made — let’s say to sales or an expense — the tax department then doesn’t have to wait until some periodic financial update to receive that information but instead, can have it when the change occurs.
The emergence of AI in corporate tax
As highlighted in the recent Thomson Reuters Future of Professionals Report 2024, artificial intelligence (AI) and data management are seen as transformative forces that will significantly impact the efficiency and effectiveness of corporate tax departments.
AI and generative AI (GenAI) has the potential to redefine how corporate tax departments work because of the capabilities of these technologies to analyze large volumes of data, identify patterns, and make predictions. Corporate tax departments that can incorporate these technologies will be able to increase automation and improve workflow — and not just in the handling of repetitive tasks like data entry, but also in monitoring and receiving continuous updates on regulatory changes that can allow for timely responses to ensure the business remains in compliance.
As indicated in the Thomson Reuters Institute’s Indirect Tax Report 2024, many corporate tax departments are looking to be more of a strategic business partner to the overall business, and using AI and GenAI tools can assist in this goal. For example, by leveraging predictive analytics, tax departments would be able to better forecast tax scenarios and offer insights to the business in making key decisions that could impact the organization’s tax status in various locations.
Structuring data with AI-driven ERP systems
But how best to leverage the use of an ERP system for maximum effectiveness? Again, this is where AI can help. The integration of AI into ERP systems will enhance tax departments’ capability to structure and manage data effectively. For example, AI-driven ERP structuring can transform a corporate tax department by allowing for:
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- Data integration and harmonization — Corporate tax departments deal with data from various sources, including accounting systems, payroll, and external vendors. AI-driven ERP systems can integrate and harmonize this data, creating a unified dataset that is accurate and consistent. This process involves data mapping, data cleansing, and data enrichment.
- Intelligent data categorization — AI algorithms can automatically categorize financial data based on predefined taxonomies, an essential component of accurate tax reporting and compliance. For example, AI can classify expenses into deductible and non-deductible categories, ensuring that the organization maximizes its tax benefits while adhering to tax regulations.
- Automated data reconciliation — Reconciliation is a time-consuming process that involves matching financial records from different sources to ensure consistency. AI-driven ERP systems can automate this process by identifying discrepancies, automating adjustments, and generating reconciliation reports much more quickly than by using a manual process.
- Real-time tax calculation and reporting — AI-driven ERP systems can perform real-time tax calculations based on the latest financial data, which is crucial for meeting tax deadlines and avoiding penalties. Additionally, AI can generate tax reports that comply with regulatory requirements, reducing the workload further on corporate tax professionals.
- Compliance monitoring and risk management — Staying compliant with ever-changing tax regulations is a significant challenge for corporate tax departments. AI-driven ERP systems can continuously monitor regulatory updates and assess their impact on the organization. This proactive approach helps identify compliance risks, recommends mitigation strategies, and tracks regulatory changes.
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The future of AI-drive ERP in corporate tax
The integration of AI and ERP systems in corporate tax departments is, in many cases, still in the early stages (especially when it comes to use of GenAI); however, the potential is enormous.
The convergence of AI and ERP systems is revolutionizing the way corporate tax departments manage and structure their data. And by leveraging AI-driven ERP systems, organizations can achieve greater efficiency, accuracy, and compliance within their tax operations, better positioning the department to act as a true strategic partner to the business.
As these technologies continue to advance, they will play an increasingly vital role in shaping the future of corporate taxation, allowing tax professionals, in turn, to focus on their talents and expertise on strategic decision-making and other value-added activities.
For more on how tax & accounting firms are leveraging advanced AI technology, download the new report, 2024 Generative AI in Tax Firms, from the Thomson Reuters Institute
