Transforming Tax Through Advanced AI and Machine Learning

Artificial Intelligence (AI) is transforming how we work. Initially, generative AI adoption delivered discrete capabilities (e.g., developing content and images), now we’re seeing AI become more ubiquitous and folding into the systems we use – both in our personal and professional lives. It is embedded into ERP platforms and tax engines alike. AI is becoming a part of the digital fabric of corporate finance. In tax it is transforming how teams work together.

Corporate tax and indirect tax are good candidates for AI. Indirect tax has the most obvious application use cases. Sales & Use tax, VAT and GST rates are constantly changing, and jurisdiction requirements vary. This can be a challenge to keep up with, but most importantly keeping up with tax rates touches everything from financial performance and accuracy to customer experience. The complexity, real-time requirements, and constant regulatory change in indirect tax stretches the value of AI beyond being useful to being essential.

Tax teams need scalable integrated solutions that simplify tax management and seamlessly integrate tax into business processes. Tax teams also need the visibility to predict outcomes, develop scenarios, and identify anomalies. These capabilities give tax teams the flexibility to adapt as the business shifts and grows. It also gives them visibility needed to provide a business with more strategic value.

The always-on nature of AI is well-suited to tax, especially indirect tax, where tax-rates often require real-time calculation. If you’ve paused for a moment to think about the use of AI in “corporate” tax settings with the thought that managing the Effective Tax Rate (ETR) is an in-arrears activity, it’s not. Machine learning models can be applied to quarterly tax estimates using historical financial data. Other applications for AI in tax include:

• ERP integrations,
• Compliance automation,
• Product classifications,
• Benchmarking transfer pricing,
• Verifying jurisdiction-specific filing information,
• Invoice processing, and
• Performing audit risk assessments.

AI’s advantage for tax isn’t in its ability to perform discrete tasks using stand-alone tools it is when AI is embedded into the tax software, and the ERP solutions finance and tax professionals are already using that it accelerates the performance of day-to-day and strategic tax activities. AI provides real-time predictive, detecting, and matching capabilities that give finance teams overall, including tax the ability to make faster, more accurate decisions. As an example, tax engines enhanced with AI can quickly determine and apply the proper tax treatment based on the context of a transaction, historical tax rate data, and jurisdiction rules.

Organizations who are considering AI use for their own tax teams should consider native AI capabilities in exiting platforms and integrated solutions that are deeply embedding AI into their platforms. Discrete, one-off-tools can be applied to a single task but lack the ability to infuse AI into tax across process workstreams. For SAPinsiders this means evaluating solutions that integrate with SAP S/4HANA and ensuring AI is a consideration as implementation and migration plans are underway.

Sovos, Sovi™ AI is a suite of embedded AI and machine learning capabilities purpose-built for tax compliance. Integrated across analytics, automation, and regulatory workflows, Sovi enables technical and non-technical teams to navigate complexity through natural language, visual interfaces, and intuitive guidance. Sovi “…codifies Sovos’ global tax compliance and regulatory expertise,” says Kevin Akeroyd, CEO of Sovos. Sovi AI capabilities are already operational across Sovos solutions, including advanced biometrics for face and liveness detection, image recognition, and secure authentication built into Sovos Trust solutions. The roadmap includes ambitious expansions such as AI compliance checks, Ask Sovi for embedded assistants, automated mapping tools for goods and services classification, and intelligent document agents for AP process automation.

What this Means for SAPinsiders

• Ensure AI for tax is being considered in SAP S/4HANA migrations and implementations.
• Look for solutions with deeply embedded AI that goes beyond performing discrete tasks and can be applied across tax workflows.
• Explore the native AI capabilities in Joule and when working with third-party vendors also ensure deep integration with SAP S/4HANA.