The future of AI in finance and tax compliance

Tax and finance professionals face increasing demands to improve efficiency while maintaining their roles as strategic advisors. To help these teams navigate today’s challenges and add more value to their organizations, companies worldwide are turning to advanced technology, like automation and artificial intelligence (AI). 

Avalara partnered with Hanover Research to explore the current challenges in tax compliance, focusing on how emerging technologies are transforming workflows. The report gathered insights from 400 finance leaders across industries like retail, manufacturing, and software in seven countries: the U.S., Great Britain, Ireland, Canada, and Australia. Participants in the survey included managers, directors, vice presidents, and C-suite executives.

Key highlights of the research included the following:

• Major obstacles faced by finance and tax teams, such as keeping up with evolving tax regulations, managing exemption certificates, and handling audits
• Technology and the critical role it plays, with automation streamlining tasks like tax calculations, compliance tracking, and reporting
• Insights are supported by detailed analysis of how automation improves accuracy, reduces risk, and frees up teams to focus on growth strategies

Read on to learn more about the future of AI in the world of compliance. Download the full report for a clear view of trends shaping tax compliance and actionable steps businesses can take to stay ahead in a rapidly changing landscape.

Results are based on the number of survey respondents and not necessarily the number of businesses surveyed.

• Automation in action

Companies who participated in the survey see the biggest efficiency gains when they automate key finance and tax tasks. Processes like real-time reporting, e-invoicing, managing payables and receivables, and calculating taxes such as sales tax and VAT benefit the most. IT teams are increasingly using automation to handle tasks like filing tax returns and managing audits. Many also believe AI will enhance these efforts, helping businesses save time and avoid costly audit penalties.

• The rise of AI

The report revealed that 90% of organizations surveyed believe AI is a powerful tool to make finance and tax operations smoother and more efficient. Businesses in North America are leading the way in adopting AI when compared to Australia, even though many feel they still struggle with efficiency in certain areas. By embracing AI and other new technologies, these organizations are setting themselves up to tackle complex tax compliance challenges more effectively.

• Focus on tax compliance

When asked about priorities for the next year, tax and finance teams who participated in the survey ranked tax management and compliance as one of their top goals, right behind adopting new technology solutions. This focus is particularly strong in industries like manufacturing and software, which face some of the toughest regulatory requirements.

• 84% of organizations say their team is most efficient at managing payroll
• 79% of organizations say their team is most efficient at real-time reporting and e-invoicing
• 78% of organizations say their team is most efficient at managing receivables/payables
• 73% of organizations say their team is most efficient at researching/calculating sales tax and VAT
• 71% of organizations say their team is most efficient at customs duty and tariffs

Finance and tax departments handle a range of tasks and generally feel confident in their abilities. However, there’s still room to improve, especially in areas like tax compliance.

Survey results show that finance and tax teams feel most efficient when they automate key tasks. Commonly automated processes include managing payroll (76%), handling receivables and payables (62%), real-time reporting and e-invoicing (60%), and calculating sales tax and VAT (57%). Tasks that rely on manual processes, such as managing audits, remain less efficient — 37% of businesses still handle audits mostly or fully manually.

Balancing oversight with automation and AI adoption in tax

While companies often prefer human oversight during audits to catch critical details, automation tools can streamline many parts of the process, like gathering documents or generating reports. Advanced technologies like artificial intelligence (AI) also allow teams to run internal compliance checks, similar to the methods tax authorities now use for enforcement.

Despite the risks of errors and high audit costs, 26% of businesses who responded still rely on manual or mostly manual methods to prepare and file tax returns, while 34% use a mix of manual and automated processes. It’s no surprise that 22% of respondents said this task is one of their most time-consuming responsibilities. By automating processes like tax return preparation and audit management, teams can save time and focus on strategic priorities like reducing risk and driving growth.

• Avalara insight: Penalties from tax audits can substantially impact a company’s bottom line. Companies may prefer human oversight during audit management, believing it reduces the risk of missing critical details or making costly mistakes. However, the adoption of automation in tax compliance can optimize key steps in the audit process including gathering documents and generating reports. Finance and tax teams can also use artificial intelligence and other technology to conduct their own compliance checks, in a similar manner to how tax authorities are using AI for enforcement.

A global comparison

Businesses in North America are less likely to rate their finance and tax teams as highly efficient compared to those in Great Britain and Ireland, or Australia. For example, only 56% of North American organizations said they’re efficient at managing audits, compared to 78% in Great Britain and Ireland, and 72% in Australia. Similarly, just 51% of North American respondents feel confident in their ability to prepare and file tax returns, compared to 68% in Australia and 74% in Great Britain and Ireland.

It’s clear that businesses across the globe are recognizing the need for technology and automation in their finance departments, and artificial intelligence is continuing to advance this trend. Get your copy of the full report to learn the details of where companies are incorporating automation and how AI is expected to make an impact.