Modernizing indirect tax departments with AI

The indirect tax landscape is under­going a profound trans­for­mation, driven by the relentless pursuit of efficiency, accuracy and strategic advantage. A The recent Thomson Reuters webinar highlighted the critical role of technology and automation in the reorga­ni­zation of the indirect tax department. This blog addresses the key challenges facing tax profes­sionals and examines the new techno­logical solutions that will revolu­tionize this function.

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The imperative to change

The Indirect Tax Department is under immense pressure to deliver on multiple fronts. A current one Thomson Reuters Institute report found that 37% of tax profes­sionals cited increasing regulatory complexity as their biggest challenge. At the same time, 39% said that a lack of resources was a signif­icant hurdle. These pressures have highlighted the urgent need for trans­for­mation.

The webinar empha­sized that success depends on both accuracy and efficiency. As Nadia BrittonEnter­prise Content Manager — Tax and Accounting at Thomson Reuters Institute, explained: “The success of the indirect tax department depends on accuracy and efficiency.” However, the path to this ideal state faces several challenges:

• Technology and automation lag: A signif­icant portion of indirect tax opera­tions still rely heavily on manual processes, leading to ineffi­ciencies, errors and increased compliance risks.
• Resource limita­tions: Limited staff and budget alloca­tions prevent depart­ments from keeping pace with the dynamic regulatory environment.
• Increased regulatory complexity: The complex web of indirect tax rules, which vary and constantly change in different juris­dic­tions, requires constant attention and expertise.

The rise of AI in indirect tax departments

The good news is that technology offers a powerful antidote to these challenges. The webinar highlighted the trans­for­mative potential of artificial intel­li­gence (AI) and automation. AI-powered solutions can automate a variety of time-consuming tasks including:

• Data extraction and analysis: Indirect tax technology solutions can efficiently extract relevant data from various sources, reducing manual effort and improving data
• Indirect tax admin­is­tration: Content-driven tax technology solutions can automate sales tax calcu­la­tions, tax returns and audits, minimizing errors and stream­lining compliance
• Compliance risk assessment: AI can analyze large amounts of data to identify potential compliance risks, enabling proactive remedi­ation strategies
• Fraud detection: AI algorithms can detect anomalies and patterns that indicate fraud­ulent activity, thereby protecting sales.

Christian Jensen, Highlighting the trans­for­mative power of AI, the Director of Technology Vertical at Thomson Reuters stated, “We see AI being used to mine this data and inves­tigate and identify these anomalies.”

Skilling the workforce for a technology-enabled future

While technology promises to revolu­tionize the indirect tax function, human expertise remains essential. The webinar highlighted the impor­tance of improving the skills of the workforce to effec­tively use new technologies. A clear majority of companies surveyed (78%) are investing in training their employees to close the digital skills gap.

Further quali­fi­ca­tions equip tax specialistss with the ability to collab­orate with AI and automation tools, allowing them to focus on higher-value strategic tasks such as tax planning, risk management and business consulting.

The Evolving Role of Tax Technologists

The conver­gence of tax expertise and technology has created a relatively new role: the Tax technol­ogist. These profes­sionals have a unique blend of skills that allows them to bridge the gap between control engineering and control technology. Tax technol­o­gists will play a critical role in driving digital trans­for­mation and ensuring the successful imple­men­tation of tax technology solutions.

A technology and AI-driven future for indirect taxes

The future of the indirect tax department is undoubtedly technology-driven. By lever­aging AI, automation, and upskilling initia­tives, indirect tax profes­sionals can create a more efficient, accurate, and strategic function. This trans­for­mation will not only streamline opera­tions but also enable tax teams to contribute more meaning­fully to overall business goals.

To fully realize the potential of technology, tax depart­ments must take a holistic approach that includes:

• Strategic vision: Develop a clear technology roadmap aligned with business objec­tives.
• Data management: Establish robust data gover­nance and management practices.
• Talent devel­opment: Investing in training and devel­opment programs for employees.
• Change management: Effec­tively commu­nicate the benefits of technology and manage resis­tance to change.

Each is a separate workflow that can be planned and executed by the tax team as part of a more technology-focused approach.

By adopting these principles, tax depart­ments can position themselves for long-term success in an increas­ingly complex and compet­itive environment.

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