Transforming Tax Functions: The Cloud Revolution and Rise of AI in Tax Compliance

Cloud solutions are revolutionizing tax functions for the better, writes Russell Gammon, chief solutions officer at Tax Systems.

Just three years ago, 60% of businesses favored desktop tax applications over cloud-based solutions. Fast forward to today, and the landscape has dramatically shifted with organizations eager to transform their tax functions and leverage new cloud-powered capabilities.

The traditionally risk-averse tax sector has rapidly re-evaluated its initial reservations about cloud-based systems. This shift has been partly driven by the swift implementation of real-time digital tax environments by tax authorities worldwide. Faced with new digital and data-intensive reporting requirements, more organizations are turning to specialist cloud-based tax software to meet these demands and maintain compliance.

A deeper look at the drivers of this shift reveals significant gains. Historically reliant on fragmented desktop systems that seldom worked seamlessly together, today’s tax leaders must eliminate manual processes and make data more accessible, integrated, and easier to manage, use, and analyze. Achieving this not only facilitates timely and accurate tax reporting but also supports the creation of truly flexible tax operations. These operations can be rapidly adapted to the evolving Making Tax Digital (MTD) demands of HMRC and the granular reporting expectations of other global tax authorities.

Modern cloud-based tax systems contribute to eliminating productivity-draining manual data entry and reconciliation tasks that consume substantial time and resources and introduce opportunities for errors. Eliminating these factors enables fully collaborative work between different organizations and locations by simplifying the integration of best-of-breed solutions.

An automated tax solution that maintains compliance while enhancing efficiency and reducing operational risk is just one of the benefits for senior tax decision-makers.

Cloud applications are also essential for enabling the seamless workflows and collaborative hand-offs that underpin the efficient outsourcing of selected tasks to value-add external advisors. This, in turn, frees in-house tax experts to concentrate on higher-priority tasks.

Organizations can confidently engage in these increasingly popular co-sourcing strategies, using their cloud platform to control and manage the end-to-end compliance cycle.

From a broader operational perspective, cloud software as a service significantly reduces the IT burden on organizations. Scalable in line with changing needs and featuring flexible pay-as-you-go models, it can be deployed quickly, with ongoing maintenance, patches, and updates all efficiently managed by the vendor rather than the customer. Moreover, by eliminating the need for physical servers, the cloud enables organizations to accelerate their sustainability objectives. In 2018, a study revealed that using the Microsoft Azure cloud platform was 93% more energy-efficient and 98% more carbon-efficient than on-premises solutions.

Designed for remote rollout, cloud software also includes built-in training and user support robots that make programs easier to use and understand. Changing mindsets within the tax sector reflect these advancements. Given the highly regulated nature of tax, compliance with data standards is a top concern for many decision-makers. However, since many cloud vendors must be certified with standards such as ISO 27001, concerns related to data compliance and governance have largely been alleviated.

While digital tax application vendors are responsible for securing their customers’ data and using best-of-breed security as standard, organizations must still ensure they fully comply with digital and information security requirements contained within regulations like GDPR. However, the compliance standards and regulatory bodies' stringent enforcement have led to increased trust in migrating to the cloud.

Additionally, the arrival of the digitally savvy Gen Z workforce, confident and receptive to new and proven technologies, has further boosted cloud adoption. Tax teams are developing their skill sets and implementing new workforce models that feature an increasing number of ‘tax tech’ roles, preparing to harness technologies like robotic process automation and AI effectively.

Cloud technology is pivotal in enabling tax teams to take advantage of innovations challenging to harness with desktop software, such as generative AI. Capable of processing vast amounts of data at high speed, generative AI can handle repetitive rule-based tasks like tax coding queries and generate comprehensive reports on complex data sets. Besides streamlining the analytics process, generative AI delivers deeper data insights and uses powerful visualizations to make these accessible and understandable for a wide range of stakeholders.

By redefining data analysis and eliminating much of the grunt work, generative AI allows tax professionals to focus their skills and knowledge in new value-add ways, such as analyzing the AI’s findings and strategically applying their expertise. Generative AI also supports tax professionals as they navigate complex responsibilities, acting as a research assistant that undertakes all the heavy lifting, freeing team members to concentrate on more nuanced tasks.

By fLEXI tEAM